Selling Cars in a Glutted Market

Over the past year, we have read continued reports of used car glut. After a spurt in sales and leases between 2014-2016, a large number of these nearly-new vehicles are ending their leases to consumers and moving to be resold. Used vehicle sales hit 39.2 million vehicles in 2017, more than double the number of new automobiles sold, according to the Based on estimates by Manheim and Reuters, we should see an estimated 12 million ow-mileage vehicles coming off leases by the end of 2019. This continuing trend has impacted dealers of new and used vehicles alike.

Dan Reel, owner of Reel’s Auto in Orwell, Ohio, sought a Ford Escape for a customer. A computer search for available used vehicles within 150 miles of Reel revealed an eye-popping figure: 668 Escapes. That’s enough to put more than 40 percent of the inhabitants of his small Ohio town, population 1,600, into the popular crossover.

Independent used-car dealers, like Reel, have seen significant benefits with an increase in available inventory at very attractive prices, turning quick profit on vehicles bought at low prices. The influx of inventory and options also provides increased options of higher quality, meaning greater value to both the dealer and consumer. However, with such large inventory available, it is no longer a matter of finding the right car for a customer, but providing a competitive advantage.

Some dealers are offering deep discounts to customers in favor of moving more vehicles off their lots. The quick churn maximizes return, as the value of these vehicles are in decline due to increased market saturation. Reel has opted to seek out vehicles that are more unique and can sell at a premium. Another tactic is Reel has shown customers auction inventory, knowing he can attain a comparable vehicle very easily, offering more choices without keeping an exhaustive inventory on his own lot.

“I can get almost any off-lease car a customer wants within 48 hours,” he said. “The only question is: ‘What color do you want?’”

The glut has been paired with a slowing demand for new vehicles, causing car makers and their franchised dealers selling new cars to offer significant discounts. Despite the affects of the glut, there are no signs of abandoning new vehicle leasing, which accounted for around 29% of new car sales in 2017, down slightly from the roughly 30% in 2016, according to J.D. Power.

While some speculate the glut will cause increased pressure on new car dealers and automakers, there is strong profit potential as customers return their off-lease vehicles in search of an upgrade, and the used cars are more sought out in the increasingly competitive market.

More reading on the used-car glut:
Glut of used cars gives buyers more options (Associated Press)
U.S. used-car glut is a dealer’s dream (Reuters)
Used vehicles drive down new-vehicle sales (Automotive news)

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