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What Happens to New Cars a Dealership Can’t Sell?

automotive dealerships

What Happens to New Cars a Dealership Can’t Sell?

As you drive by your local car dealerships, you’ve probably noticed the countless rows of new vehicles. While it probably doesn’t weigh heavily on your mind, you’ve probably thought – what happens to the new cars a dealership can’t sell? After all, the dealer must make room for new models and it’s impossible for them to sell everything they have first.

While the dealer isn’t going to give the cars away to just anyone, it is possible to get a good deal when the time comes to make room for more. Not only do they offer steep discounts, but you might be surprised at some other ways they move inventory.

Let’s learn about some of the car dealership secrets you might not be aware of. We imagine that many of these might surprise you – especially #6.

Where Do Car Dealers Get Their Cars From?

Before you figure out where the new cars go, you must first understand where they originated. The car dealership is not an entity of the manufacturer. Instead, it operates solely as a franchise. This means that they purchase the new cars directly from the manufacturer at a lower cost. Then, they must sell them at a higher price so they can earn a profit.

Once the dealer makes the purchase, the cars are theirs forever. They don’t have the option to send back the unsold inventory when the year ends. In order to recoup their money, the dealer must sell the vehicles.

With the right automotive marketing tactics, they won’t have any unwanted cars. Sadly, many dealerships aren’t investing in their digital marketing the way they should and often find themselves with many leftover models when the time comes to make room.

Just look at the following figures as proof.

How Many New Cars Go Unsold?

In a story done last year by Auto News, it was estimated that there were more than four million unsold vehicles on April 1. This number came close to the modern-day record that was set back in May 2004. This figure doesn’t include Tesla’s leftover inventory totaling another 18,000 vehicles.

What Happens to Unsold New Cars?

Now that you know where the cars come from, it’s time to discuss where they go when no one wants them. There are several options and each dealership deals with the situation differently. Here are a few of the choices that will be made.

#1 – Price to Sell

Most dealerships will begin by lowering the price of that model. At first, it might just be an additional incentive thrown in, such as free oil changes. Eventually, the dealer will offer to sell the vehicle at cost just to break even.

This often occurs when the new models are rolling in. Dealerships aim to get rid of the previous inventory before the new models arrive. This prevents older cars from competing with the more modern upgrades.

Another tactic is to sell the vehicle to an employee at rock-bottom pricing. Employees pay a different price than the average consumer, sometimes as much as 20 percent off the list price. The dealer can also offer that employee particular financing packages – as low as zero percent interest.

#2 – Trading With Other Dealers

When a car doesn’t sell on the lot, some dealers will negotiate with a local lot. Some models do well in particular markets. For example, there might be a Ford pickup that isn’t selling at a city lot but would perform in a rural area. The two dealers work together to trade vehicles to one another in a way that is mutually beneficial.

#3 – Storing New Cars a Dealership Can’t Sell

Unsold cars sometimes make their way to storage. If the dealer can’t afford to hold onto the car and needs more room, they will send them off to storage for a short time. This isn’t a long term option and generally just creates more time for them to decide what to do next.

Dealers often utilize large storage lots that can hold up to thousands of unsold cars from various dealerships at one time.

#4 – Auctions

There is always the option to sell the unsold vehicles at an auction house, but this generally isn’t recommended. The dealer loses a good chunk of money when this happens. Typically, this won’t occur until the vehicle is at least two years old. Even though it is new and probably not driven much, it won’t bring in the price of a new car once it gets on the auctioning block.

Many of these auctioned cars find their way to the smaller dealerships. They tend to have better success at selling a new but older model vehicle. Plus, they can offer a steep discount considering what they paid at the auction.

It’s also possible that this car gets auctioned off to a rental car company.

#5 – Put to Work

When all else fails, the dealership might decide to use the vehicle themselves. It becomes a loaner car for customers to use when their vehicle is in for repairs. Not only does this provide a purpose for the unsold vehicle, but it helps to create a buzz for that model.

Some customers end up purchasing a vehicle based on the experience driving the loaner.

#6 – Donation

Another option the dealership has is to get rid of the vehicle through a donation. When a car is donated to a non-profit organization, a tax write off is given. Most charities sell the vehicle and then provide the dealer with a receipt showing how much they earned from the donation. This is the amount that the dealer can deduct.

Good Deals on New Cars a Dealership Can’t Sell

Because the manufacturer wants to make a profit on their vehicle, their best option is to sell it. Even when they give it at a discount, they end up in better shape than with the other options. When you purchase one of these discounted cars, it means a win-win situation for both of you.

The manufacturer isn’t going to take the new cars a dealership can’t sell back, but they often make it easier for the dealer to sell them. Sometimes, this comes in the form of financing offers or various incentives. If the car doesn’t sell after a good chunk of time, the manufacturer might even put a clearance rebate on it. This rebate isn’t given to the public but received by the dealership.

This often means that they can lower the price to create an appealing offer. Fall is one of the best times to take advantage of reduced new car prices because the dealer needs space for the newer models.

Still, there are some things to be aware of before purchasing these new cars that haven’t sold.

Dangers of Unsold New Cars

Sometimes, a deal is too good that it raises red warning flags. While we all want to save money, there are some things you must be aware of when purchasing the new cars that didn’t sell.

First of all, consider how this car sat in the elements for months or even years. That’s a lot of abuse and wear on a new vehicle. Depending on where you live, that might include heat or snow. You want to verify that the battery is still working well and that there is no rust anywhere on the vehicle. Look for weather-related damage. If everything looks good, there’s nothing to lose.

Secondly, you want to consider the features of the vehicle. If it has been sitting on the lot for two years, it likely doesn’t have all of the same features as the newest model does. Sure, it comes with deep discounts, but does it come with everything you desire? Carefully look over the specs of the model and see what it does and doesn’t offer. Compare the new cars a dealership can’t sell to the latest models to see what is different.

As with bargain shopping for any product, you want as much information as you can get. As long as you make an educated purchase, you will do fine. The dealer will thank you for taking the car off their hands and you have a deal you can brag about to your friends.