Dealers perform a difficult balancing act to protect cashflow

In the coming weeks and months car dealers will look increasingly to the dreaded banks to extend their overdrafts in an attempt to ease the pressure on their cash flow. With the continuing reluctance of these lenders to support an industry which is now widely acknowledged to be haemorrhaging money, dealers will have to look at further dramatic cost cutting measures to avoid adding themselves to the casualty statistics. Although a large percentage of franchised dealers have announced positive results for January in terms of used car sales, profitability and even some new car forecasts shaping up to be better than expected, there is still the fear that last year’s drastic decline in the new car market will cost the industry many more jobs.

With the losses on demonstrators and pre-registered cars still having a catastrophic effect on cash flow and profitability, it could be 2011 until the industry fully recovers. We have spoken to many dealers who took the plunge and sold these types of cars at ‘market value’ in 2008 and though this was a painful exercise the money back in the bank enabled a lot of them to take advantage of cheaper used car stock which became available in late 2008 and early 2009. it seems by taking their medicine these dealers as well as selling used cars profitably are also turning their stock quicker and more often again aiding cash flow, hopefully these dealers will weather the storm.

The market is hardening and if wholesale prices continue to rise as they are currently then the pressure on dealers to try and sell similar stock for more money will be an enormous challenge. Of course they will need to rely on continued demand to sell cars but by taking the gamble of paying more and passing these prices onto customers, the challenge will become even greater. Is it best to keep selling cars knowing that it might not be so easy to replace them but keeping the cash flowing? If they have to pay more to replace certain cars will they still be able to make a reasonable margin? Will the buying public accept an increase in prices from dealers in the current economic climate even though that is what is happening in the market?
For buyers unfortunately the picture will only become more confusing, some reports suggest that dealers are giving no more than 5% off new cars and some are saying the deals can amount to 30%, it really seems to be a different story from region to region and franchise to franchise, and as we often point out the situation can change almost overnight depending on what dealer you visit.

Our advice is to keep trawling the net and making comparisons where possible and waiting for any announcements in the press as March wears on. There may be a case, as car makers look to move metal in march, that the rising price of used cars and the lack of stock may make buying a new car a more viable proposition, something at present many buyers and dealers alike would probably find unthinkable.