Having been in the wholesale/purchasing side of the business since 2009 I've only known 'unstable markets'. Cash for clunkers changed the game, the recession changed the game, fleet lane reduction changed the game, Carmax/Carvana/Drivetime changed the game, and now covid production issues/lease shelf/rates have changed the game again.
But this time it feels different, very different.
Since early July wholesale prices have been on fire in way I've never seen going into your 'typical' depreciation cycle. MMR is ≥ retail on just about anything late model, anything under $25k will bring thousands over retail books - no matter the condition. Supply is abysmal and only undesirable vehicles or ones with issues are making it to auctions. Auction fees, quality, and support are also becoming a major issue. Retail prices/books aren't rising nearly fast enough to compensate for wholesale demand though I suspect they are due for a massive correction.
I would consider my team and I some of the better organized and talented groups in procurement with decades of experience between us and we're all kind of at a loss. There simply aren't enough vehicles to satisfy every dealer trying to buy them, and buying from the public in my market is prohibitively competitive. Lease turn-ins aren't coming back and we're left with a flaming crater where millions of used cars should be. Being 100% trade reliant isn't realistic when you're selling entry-level vehicles as these trades are generally at the end of their lifecycle.
So my question to everyone is where do you see this going? If rates get lowered this is only going to get worse. If used keeps appreciating how many consumers will finally bite the bullet and turn to new? Is a pivot to creative financing options (lease to own, bhph) a way to recoup margin compression?
Love to hear everyone's thoughts!
But this time it feels different, very different.
Since early July wholesale prices have been on fire in way I've never seen going into your 'typical' depreciation cycle. MMR is ≥ retail on just about anything late model, anything under $25k will bring thousands over retail books - no matter the condition. Supply is abysmal and only undesirable vehicles or ones with issues are making it to auctions. Auction fees, quality, and support are also becoming a major issue. Retail prices/books aren't rising nearly fast enough to compensate for wholesale demand though I suspect they are due for a massive correction.
I would consider my team and I some of the better organized and talented groups in procurement with decades of experience between us and we're all kind of at a loss. There simply aren't enough vehicles to satisfy every dealer trying to buy them, and buying from the public in my market is prohibitively competitive. Lease turn-ins aren't coming back and we're left with a flaming crater where millions of used cars should be. Being 100% trade reliant isn't realistic when you're selling entry-level vehicles as these trades are generally at the end of their lifecycle.
So my question to everyone is where do you see this going? If rates get lowered this is only going to get worse. If used keeps appreciating how many consumers will finally bite the bullet and turn to new? Is a pivot to creative financing options (lease to own, bhph) a way to recoup margin compression?
Love to hear everyone's thoughts!
