Ever wondered what happens to the cars that linger too long on dealership lots? It’s natural to assume that among the multitude of vehicles, some might not find buyers. But in reality, very few cars remain unsold indefinitely. Dealers employ various strategies to move these vehicles. Here’s what typically occurs when new cars overstay their welcome on the lot:

Here’s an explanation of how cars are sold under the dealership model in the United States:

To understand how cars are sold in the United States, it’s important to grasp the basics of the dealership model. Manufacturers typically do not sell cars directly to consumers, and in some states, laws explicitly prevent such transactions.

Instead, manufacturers sell vehicles to authorized dealerships, who then sell them to consumers. Essentially, manufacturers receive payment from dealerships, and consumers pay dealerships for their purchases. If a car doesn’t sell well, dealerships cannot return it to the manufacturer for a refund. Therefore, the responsibility for selling any unsold inventory rests primarily with the individual dealership.

Dealerships are strongly motivated to sell every car they have for several reasons. Firstly, it’s beneficial for their business to move all their inventory. Moreover, dealerships face constraints in terms of limited space on their lots. A slow-selling car occupies valuable space that could otherwise be used for more profitable or newer models that sell quickly. Therefore, each unsold car on the lot represents an opportunity cost that dealers aim to minimize.

Furthermore, most dealerships don’t outright purchase cars from manufacturers. Instead, they finance vehicles with the intention of selling them to consumers at a slight markup for profit. Consequently, the longer a car remains unsold, the more it costs the dealership in terms of interest on the car loan. Thus, unsold cars not only represent opportunity costs but also accrue actual financial costs in the form of interest payments.

There are a few different ways dealers handle inventory that’s slow to sell:

Dealers often rely on the adage that anything can be sold for the right price, especially when dealing with slow-moving inventory. They frequently entice buyers with discounts and incentives, which tend to be more generous for unsold cars compared to popular models. Manufacturers also collaborate with dealers by offering special deals and rebates to expedite inventory clearance, as it benefits both parties to move cars off the lots swiftly.

Another approach dealers employ with less popular cars is transforming them into “loaner” vehicles for temporary use by customers whose cars are undergoing service. This strategy effectively turns a new car that struggled to sell into a lightly used vehicle. The “used” classification reduces the price, but since the car has seen minimal usage, it remains in excellent condition, enhancing its appeal to potential buyers.

Car purchasing can vary significantly based on regional factors. For example, states with harsh winters often struggle to sell convertibles compared to states with consistently warm and sunny weather. To address this issue, authorized dealers frequently exchange inventory with each other. This practice ensures that slow-selling cars can be relocated to markets where there is higher demand for them.

The dealership might opt to sell the vehicle at a car auction, typically seen as a final option. However, this approach carries risks because cars usually fetch lower prices than retail at auctions. Moreover, auction houses often levy extra fees, potentially resulting in a financial loss for the dealership.

When it comes to the duration a car spends on the lot, time translates directly into money for dealers, who often finance their inventory and incur interest until each vehicle is sold. To address slow-moving inventory, dealers typically employ strategies like offering discounts and special deals to attract buyers. They may also repurpose a new car as a “loaner” vehicle to classify it as lightly used, enhancing its appeal to potential buyers. As a final measure, they might resort to selling the car at auction. Therefore, the question of “What happens to unsold cars?” can be somewhat misleading because every new car eventually sells—it’s just a matter of how much additional time and effort each car requires to find a buyer.