Dealerships pushing to increase pre-owned inventory, custom orders

With supply chain issues exacerbated by the pandemic and a significant shortage in microchips and semiconductors for new cars, auto dealerships are shifting gears to stay competitive.

“My honest opinion is that new vehicle normalcy is several years away,” said Evan Deshong, sales manager for Mike Maroone Ford in Longmont. 

Deshong said the pandemic only exacerbated a flaw in how manufacturers and dealerships stock new inventory. The future will involve tightening the amount of inventory available on a dealer’s lot and focus more on customers ordering vehicles customized to their specifications.

Randy Deshler, general manager at Prestige Chrysler in Longmont, held similar views when it comes to dealerships' future inventory. Deshler felt the future would be more profitable for dealers to stock less inventory, taking into account the overhead costs of keeping new vehicles on the lot and the amount of depreciation a vehicle incurs if it doesn’t sell.

Prestige Chrysler also angles prospective customers toward custom ordering their vehicles and planning for the future, which keeps overhead costs lower for the auto dealership and customer alike, Deshler explained.

“It makes more sense for us than stocking a full lot,” Deshler said. “With new inventory insecure, it can be better to order a new vehicle.”

According to data from the U.S. Bureau of Economic Analysis, automotive manufacturing in the country has been in steady decline for the past five years. The pandemic caused a sharp decline early in 2020 as the world shut down to slow the spread of COVID-19, but after a brief return in July of 2020 the industry began declining once more. 

With new vehicles difficult to procure, Longmont dealerships are expanding their used car inventory. Deshong said Maroone Ford has been stockpiling 'pre-owned' inventory and paying top dollar to private owners in order to keep a two-to-one ratio of 'pre-owned' cars to new on the lot. According to Deshler, Prestige Chrysler has one staff member whose only job is to procure used vehicles from private owners.

“In order to keep a full lot, we’re paying the piper here,” Deshong said.

Because dealerships are paying higher costs to secure an inventory of used vehicles, those costs are being carried over to the consumer as well. Deshong said the prices on used vehicles are 20% higher than ever before. Federal Reserve Economic Data and U.S. Bureau of Labor Statistics also showed a dramatic jump in the cost of used vehicles, a difference of 25% from the beginning of 2020.

What hasn’t changed, according to Deshler, are services offered by the dealership. Prestige Chrysler has always had a steady push for services and repairs, he said, and the shortage hasn’t affected that much. 

Both Deshong and Deshler agreed, the future of the automotive industry is changing and dealerships are going to put a greater focus on customized vehicle ordering and 'pre-owned' over a lot packed full of new vehicles.