Caution Signs Ahead for Used Car Enthusiasm

Coming off a steady April, May, and June used car sales frenzy, a dealer now rolling into mid-summer should not expect that zeal to continue. Keep summer inventory in check, as 2020 will be a different selling season.

Our data at LotPop shows just how energetic used car sales were for many dealers this spring, despite earlier predictions. Our clients were selling from 50% to 70% of their inventory over two-week spans. In other words, dealers stocking 100 used cars and selling 50% of them over two weeks were on pace to retail 100% of their inventory in a month. One client was at 118% during a single two-week period.

Dealers were, and some may still be, seeing decent volume numbers compared to their carrying levels, but by June we were seeing two-week levels trending downward. If you were a dealer spending $2,000 to $3,000 over retail to buy trucks during those busy sales months, you might now find yourself holding those vehicles longer than you had anticipated. Have fun working yourself out of those investments.

That burst of spring feeding frenzy was nothing more than pent-up demand from February and early lockdown days – and the hangover from what was this heady April, May, and June market. Don’t be one of those dealers still stocking up now as you did recently. By June, it seemed someone turned the faucet off – and the mid-summer through September used car sales rebirth we’ve known before will not return this year.

I understand that this scenario may be different for you, as different areas of the nation came back online at different times. However, regardless of when you got back to business, the summer-selling opportunities you’re used to will not materialize this year.

Keep in mind that summer selling months are driven mainly by the manufacturers promoting clearance sales to make way for new-year models. All that traditionally stirs up a lot of activity from July through September. But new-car inventory levels remain low. That may or may not point to the opportunity for used cars. Many buyers are new-car buyers only and won’t buy a used car. That is a problem for used car dealers.

Finally, watch for rental and lease companies dumping cars. That will improve sourcing choices but will deflate wholesale and retail prices. As these larger players start unloading, everyone else will follow, selling off while there’s still money to be made. Expect a 10% to 15% drop in wholesale prices once unloading happens. Plan accordingly.

Jasen Rice is the founder and chief executive officer of used car analytics and inventory consulting practice LotPop. www.lotpop.com