We are awarding $750 to a student every semester. All you have to do is show us how financial literacy has made a difference in your life.
From top of the line brand new cars to reliable used ones, most dealerships have extensive inventories and offer a wide variety of vehicles for Canadian consumers to choose from. But what happens when they can’t sell all of their stock?
How Does A Car Dealership Function?
Like many businesses in Canada, most dealerships are built to be franchises. Commonly known as a “floor plan”, these locations work directly with various vehicle manufacturing companies by buying up their new stock and reselling it at a higher cost, which is one of the most effective ways for them to make money.
Everything you need to know about buying a car out of province.
Dealerships & Manufacturers: Working Together To Sell Cars
If you’re thinking about leasing or purchasing any kind of vehicle, it’s essential to remember that dealerships must turn a profit to remain in business, so they are going to try and sell off their inventory for more than it was initially priced when it left the factory. However, they’ll have to buy all these vehicles before they can actually sell them.
Typically, the process goes something like this:
- Similar to traditional in-house financing, dealerships often use loans to purchase an assortment of vehicles from the manufacturer, who are usually the ones to finance the loan.
- After they’ve been bought, any cars, trucks, vans, or SUVs will become the dealership’s responsibility. That said, it’s in the manufacturer’s best interest for said dealership to sell the vehicles in the highest volumes possible.
- The manufacturer will then help the dealership in whatever way they can, such as funding their marketing campaigns, offering customers special leasing or financing terms, and any other incentives that might move some inventory.
- If a particular vehicle is marketed well or has many features that buyers find attractive, the hope is that the dealership showroom and parking lot will be cleared by the time the next generation of vehicles is produced.
- Unfortunately for the dealership, they may have to look into other solutions for any vehicles that they don’t manage to get sold, which can be tedious, time-consuming, and result in them losing a significant portion of their proceeds.
Can Dealerships Send Unsold Vehicles Back To The Manufacturer?
Once they’ve purchased the vehicles outright, dealerships are more or less stuck with them until they can find prospective drivers to take them home. Simply put, these cars cannot be sold back to the companies that produced them.
The only exception would be in the case of lease-returns, wherein the dealership didn’t fully purchase the undesirable cars and may ship them back to the manufacturer, where they would be put up for auction and ideally resold at a minimal loss.
Is a lease takeover the right option for you?
Where Do These Unsold Cars Go?
Just like the manufacturer, dealerships need to reduce as much liability as they can when it comes to their unsold vehicles, in which case they have several options.
While these alternatives aren’t always desirable, dealerships often prefer them over having extra inventory that’s taking up valuable storage space.
Traditionally, a Canadian car dealership can move their unsold vehicles by:
Shipping Them to a Different Market – If a make, brand, or model isn’t selling well in a particular region of the country, the dealership may send their remaining inventory to one of their other branches. For instance, pick-up trucks and SUVs are generally more popular in rural areas, whereas smaller, more fuel-efficient models are better for city life.
Auctioning Them Off – There are plenty of auction houses across the country that will take in most new or slightly used vehicles, especially luxury models. The biggest drawback is that the dealership will probably have to sell their vehicles for much less than they paid for them. Not to mention the fees associated with the auction process, as well as the time and resources it can take to see a viable return on their investment.
Renting Them to Customers – Every car, regardless of the year or mileage, is going to need servicing and repairs from time to time, which is great when you can get it done for no or minimal cost at the dealership garage. Since some maintenance can take a few days, returning clients can borrow them to get around temporarily.
Selling Them Cheaper – If the dealership really can’t make a profit on their vehicles, they can always sell them for reduced prices at the end of the year when the new models are rolling in. While this likely means they’ll be operating at a loss, they’ll be able to make room for more inventory and potentially earn some of their money back by selling warranties and other incentives.
Scrapping Them – Although it’s rare, the final resort a dealership can take is to sell their unsold vehicles to a scrap yard. Of course, this would be the least appealing and cost-effective option, especially if the vehicles are relatively new. However, used car dealers may benefit from this by getting rid of older, less valuable models.
Struggling to keep up with your monthly car payments?
How Can Customers Get The Best Deals?
As mentioned, one tactic that dealerships will use to push their unsold vehicles is to sell them as the previous year’s models, which works particularly well when it’s just before or after the new ones hit the showroom floor.
Priced & Pushed To Sell
In fact, many experts speculate that the best months to purchase a recent or lightly used vehicle would be between August and December. Negotiation is also key here since many dealers are willing to adjust their prices if it means they can make a sale.
They may even throw in extra perks to reel in prospective customers, such as extended warranties, customizable payment plans, upgrades, and other appealing features. Depending on where they’re located and what models they sell, some luxury dealerships may not be as lucky here, mostly due to their vehicles’ higher price tags.
When And Where To Look For A New Car
As you can imagine, leasing or purchasing a car isn’t the easiest decision. A lot of research and financial planning are necessary prior to signing any contracts. After all, it’s important to keep in mind that dealerships are trying to free themselves from vehicles that are otherwise unsellable for one reason or another.
Suffice to say, it’s possible to find the best conditions for your new car when:
- It’s nearing the end of the year (August – December)
- You have a full-time job and a solid monthly income
- You’ve found a reliable and affordable source of financing (in-house or otherwise)
- Your chosen dealership has a trustworthy reputation with its previous clients
- You can afford a sizeable down payment (optional but helpful)
- You’re prepared to negotiate with your auto dealer
- You’ve done extensive research and found the best vehicle for your lifestyle
- You’ve found a vehicle with the least chance of depreciating in value
- You have enough savings and/or credit to cover your future payments, interest and fees, along with all your other vehicle or home-related expenses
Need Help Finding A New Or Used Vehicle?
Searching for a car, truck, van, or SUV can be a difficult and expensive task. However, we can help by setting you up with the best vehicle financing options in your province or territory.
Rating of 4/5 based on 8 votes.
Largest Lender Network In Canada
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
50 Free Trades Offer
Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.
Borrow Today, Don’t Pay Till July
Borrow $500-$50,000 from Fairstone by May 31 and don’t pay until July.
Build Credit With Refresh
Build credit while spending money with the Refresh Financial VISA card.
Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.