Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

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. 
Auto Financing 101
Everything you need to know about auto financing.

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.

New vs. Used Cars
Trying to decide between a used vehicle and a new one? Check this out.

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.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

More From This Author

Special Offers

More From Our Experts
Loans Canada places No. 228 on The Globe and Mail’s fifth-annual ranking of Canada’s Top Growing Companies.

By Caitlin Wood, BA
Published on September 29, 2023

Loans Canada is excited to announce it has made it onto the Globe and Mail’s Top Growing Companies list for the second year in a row.
Finder Awards Finalists: Personal Loans Customer Satisfaction Awards 2023

By Priyanka Correia, BComm

Loans Canada is happy to announce it received the finalist award in the Best Personal Loan Search Platform category.
Beware of Fraudulent Lenders Impersonating Loans Canada

By Caitlin Wood, BA

A note to our clients about fraudulent lending practices and illegal upfront fees.
Medical Expenses You Can Claim For Taxes In Canada

By Sandra MacGregor

Wondering how much can you claim for medical expenses on taxes in Canada? Find out what medical expenses are eligible and the proper way to claim them...
Conditional Offer: Meaning And How It Works

By Lisa Rennie

Find out how a conditional offer can protect buyers financially and protect them from purchasing properties with hidden problems.
Alberta Child And Family Benefit (ACFB) Payment Dates 2024

By Chrissy Kapralos

The Alberta Child and Family Benefit (ACFB) is a program that gives lower- and middle-income families with children under 18 financial assistance.
How Does Buying A House As A Common Law Couple Work In Canada?

By Lisa Rennie

Are you buying a house as a common law couple In Canada? Find out how it'll affect your mortgage and how it affects the property title.
Understanding The Compassionate Care Benefits Available To Canadians

By Lisa Rennie

Government programs known as "compassionate care benefits" are designed to help caregivers financially while they're off work.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Expert Tips
And Advice

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card