Setting records isn’t always a desirable thing, particularly when it comes to unsold vehicle inventories. At the beginning of April of this year, it’s estimated that 4,188,200 unsold new vehicles were parked on dealer lots and overflowing onto other properties such as fields and defunct shopping malls. This is one of the highest numbers in the last 15 years: just 114,300 vehicles fewer than the modern-day record set in May of 2004, according to Automotive News’ Data Center.
“Bulging inventories, combined with rising floorplan interest rates, are sapping whatever was left of dealers’ new-vehicle margins and threaten to unravel the industry’s hard-fought pricing discipline if demand erodes further,” wrote Automotive News’ Larry P. Vellequette. “Pushed each month by factory reps to load their lots with more and more of the latest and greatest, many dealers now find themselves stuffed to the gills, paying extra for off-site storage while the interest clock ticks and each vehicle’s floorplan allowance melts away.”
Analysts have theorized that vehicle manufacturers have not yet started to feel the pain of the situation, since most of it has been borne by car dealers. Floor plan interest rates, which once hovered around 1.5 percent, are up to five percent, in some cases. Some dealerships are seeing floor plan expenses up by 50 percent or more.
If the situation continues and dealers’ surplus of unsold inventories continues to grow, automakers won’t have a choice: they will need to begin offering substantial incentives to buyers to try and move the burgeoning inventory off dealer lots. This is a situation that would greatly benefit consumers, many of whom are finding new car prices too high for their budgets, but carmakers would begin to see their profits shrink. Automakers would also need to follow through on promises to dealers, many of which have not materialized.
“I have so many vehicles, I stopped accepting deliveries,” one FCA dealer in metro Detroit told AN. “First they told us to order Durangos because they were going to put extra support on them, so we stocked up, but the support never came. Then they stuffed us full of [Jeep] Compasses. Then they told us that in order to get [Jeep] Gladiator allocation, we had to order Ram pickups, so now I’ve got those coming out my ears.”