What Happens to Unsold New Cars at a Dealership?

Almost every new-car dealer will display rows of pristine vehicles on their lot for connoisseurs like you to browse and perhaps purchase. Many of those cars or SUVs get snapped up quickly, especially the latest version of popular models.

But what about the fate of vehicles that fail to sell like hotcakes? What happens to them after they’re moved out of their parking slots to make room for the newest model year? Let’s look at what happens to unsold new cars in dealerships and see how one of them might turn out to be the next best thing.

What Happens to Unsold New Cars at a Dealer?

Unsold vehicles stay in the dealer’s lot until someone purchases them. They pose a problem for the dealership, which wants to sell as many cars or SUVs as possible in the shortest time frame.

Car dealerships are the middlemen between auto manufacturers and consumers. They have franchises that allow them to purchase vehicles from manufacturers at wholesale prices. In turn, dealers sell the cars they bought to consumers at retail prices.

However, dealers don’t buy vehicles from auto manufacturers in the strict sense of the word “buy.” Instead of using hard cash, they finance their stock acquisition through short-term loans and pay the bank with the profits they make from selling cars. This approach to inventory financing is called floor planning.

Each vehicle in a dealership’s inventory represents a significant investment. The longer it stays on the lot without a buyer, the more unpaid interest accumulates on the loan that financed its acquisition. And because dealers cannot return unwanted vehicles to the manufacturer for a refund, they must find a way to sell the products and recoup at least some of the costs.

You can refer to unsold new cars as “slow-selling cars.”  Dealers intend to sell those vehicles, even if it takes years and doesn’t return the same profits as selling a new unit.

What Do Dealerships Do With Unsold New Cars?

There are several ways for dealers to unload slow-selling cars. The most common are the following:

Discounts and Incentives

Who doesn’t love discounts? Not only do you get something you want, but you also save money on the transaction. And the seller profits from unloading an item they no longer want.

Car dealerships are aware of the power of discounts. They slash the price tags of vehicles they want to move out of their lot. And if you compare the discounted prices of brand new units with unsold but pristine older ones, you’ll notice that the latter usually have bigger discounts.

The profit from selling a discounted unsold car is smaller than the markup price of a new unit. However, the car dealer might make enough to cover a good percentage of the loan that financed the slow-selling car. At the very least, the dealership can stop paying interest on that vehicle’s loan.

Car manufacturers assist dealerships in unloading unsold new cars. A manufacturer might offer cash back offers, subsidize the lease of older cars, and financing deals with low or even zero-interest rates. If the dealership can successfully slow-selling cars, it can afford to finance new acquisitions from the manufacturer.

Salespeople Pitch Unsold New Cars

Have you ever gone to a dealership and provided precise details about the car you want, only for the salesperson to start sweet talking you about a different, older vehicle? There’s a good reason for the redirection.

Many salespeople push slow-selling cars on customers because they receive cash incentives nicknamed “spiffs” from the dealers for every successful sale of an unsold new vehicle. So when a salesperson tells you to consider getting an older but unused, practically new car, they might be angling for a bonus to their paycheck.

Service Loan Vehicles

Some repair and maintenance jobs require the facilities and tools found at the dealership. These fixes might take several days or even weeks. During this time, the dealer’s service department might lend you one of their service loan vehicles while you wait for the return of your vehicle.

It’s not uncommon for a dealership to use one of their slow-selling cars as a loaner. If someone uses a brand-new unit for some time, the dealer can reclassify it as a nearly-new used vehicle.

The price tags on nearly new used vehicles are much lower than the retail price suggested by the manufacturer. Their reduced costs and practically new condition can attract buyers on a tight budget.

Demonstrator Vehicles

Another way that dealerships can convert slow-selling stock into nearly new used cars is to use them as demonstrator vehicles. Demonstrators are unsold vehicles that remain registered as dealer stock. Dealership personnel and potential customers use them in the following roles:

• Test-drive vehicles
• Company cars

Service loan vehicles are sometimes demonstrator vehicles as well.

Lightly used demonstrator vehicles can count as nearly new used cars. The dealership can apply discounts on them to attract buyers.

Trade With Other Dealers

There’s an old proverb about one man’s trash being another’s treasure. It applies to many things, including unsold new vehicles in a dealership’s lot.

People’s preferences for vehicles vary between regions according to factors like terrain and weather. A New Englander might prefer an all-wheel drive or 4-wheel-drive vehicle, but someone from the South might not find such vehicles to their liking.

A dealership might propose to trade its unsold new vehicles to a counterpart in a region with plenty of demand for such units. In exchange, it will get slow-selling vehicles that might prove popular in its area.

Car Auctions

Sometimes, no one wants to pick up a slow-selling car, no matter how big the discount is or how popular it is in another area. When that happens, the dealership can bring the unwanted vehicle to an auction house.

The auction house will put up the vehicle for bids. After selling the car to the highest bidder, the house takes a percentage of the final bidding price.

Dealerships consider car auctions a last resort. They already sell slow-selling cars at steeply discounted prices. But if they auction off a vehicle, they must also pay the auctioneers for the latter’s services. However, dealers might feel desperate enough to get the unsold new car out of their inventory that they’ll agree to auction it off.

Can You Buy Unsold New Cars?

You might want to get an unsold new car instead of the latest model years. These vehicles are usually in good condition and practically unused.

If you plan to get a slow-selling car, take the necessary steps. Inspect the vehicle for any serious problems and check the dealer’s documents. If everything passes muster, you can enjoy driving your almost-new car.