Dealers: Pre-Owned Optimism and Supply Chain Disruption are Creating Dislocation

By Bruce Thompson

The way of doing business and buying cars has most likely forever changed due to the pandemic. What we’ve witnessed in the last three weeks has been the fastest “V” shaped pre-owned recovery we’ve ever seen. As the largest auction houses in the country have announced they may never host another physical sale, dealers have been forced to adopt the new reality of online-only auctions at warp speed. The pre-owned supply chain has been disrupted as pent-up demand has soared. Dealers across the U.S. are sitting on the lowest day supply of new and used inventory we’ve possibly ever seen. As OEMs sputter to get manufacturing back online, the pre-owned situation is not likely to change in the near term.

This is not a normal cyclical situation where prices rise in the spring and mitigate in the summer. What we are witnessing is historical market disruption which has led to severe dislocation. If dealers dumped pre-owned inventory in a panic as pandemic fear drove values down 12-15% almost instantly, they are now lamenting that decision as it’s cost them tens of thousands of dollars. They now find they simply can’t replace that inventory anywhere close to their panic proceeds. Prices have bounced back at a record pace and show no signs of abating. The frenzy in online auctions is driving prices $2000-3500 higher than the Manheim Market Average. The MMR average will catch up, but the reality, for at least the near term, is dealers must adapt quickly and adopt untraditional channels to compete and survive.

“One of the easiest processes is to buy through CarOffer,” says Bruce Lynch, Vice President of Inventory Operations at Car-Mart in Tulsa, OK. “I like that the car gets delivered and I don’t have to deal with all of the issues that are required to get a car to my lot, like title chasing and transportation. And it’s all on one bill of sale. No hassle. I like that.”

CarOffer™ gives dealers an alternative to vehicle acquisition, allowing them to trade (buy/sell) vehicles like stocks. The platform creates instant liquidity allowing dealers to source inventory by placing limit purchase orders for vehicles they need with accuracy and automation so they have the inventory to meet demand, and don’t suffer from being underwater with aged inventory. It’s the type of easy but sophisticated automation everyone needs today to manage their business in these unprecedented times.

No one knows exactly what the future looks like and what the new standards of “normal business procedures” will be, but we can acknowledge that new offers and behavioral patterns are going to have a lasting impact on driving trends and the auto industry. From OEM incentives to low interest rates to the decline of ride sharing and public transit, the groundwork is being set for dealers to meet the growing demand for used vehicles. In fact, trucks and SUVs are reining the market like never before, perhaps driven by more DIYers and people opting for more rural activities.

Yes, the times are changing. But no, it isn’t all doom and gloom. With smart, strategic decisions based on market conditions and demand, dealers could evolve their operations for the better, and for good.