Will OEMs compete with dealers for used car sales?

0

I recently attended an industry dealer-focused event in my hometown of Philadelphia, where a top dealer, who just returned from Europe, verified that the “agency” model takes the over there and, clearly, the trend is coming here. Another indicator that shows this very clearly is Ford’s recent dealer announcement, which dictates both investment and margin for dealers who want to sell the automaker’s electric vehicles.

While this moves away from the historic level of dealer price controls for new vehicles, there may be benefits when demand/supply levels return to normal. This is because competing franchise dealers will not be placed in a “race to the bottom” position on price in an effort to close a sale, and manufacturers pursuing an agency-like approach pay the cost of owning demos and stocks.

Without commenting on the likely success of such a strategy in the United States, this same motivation for OEMs to reduce distribution costs by mimicking the Tesla model leads to more worrying moves on the used-car side of the equation.

OEMs control hundreds of thousands of non-fleet, lease and lease returns that are historically returned to dealers through wholesale auctions or, in the case of retail leases, offered to the lessee first, then to the dealer. This practice may be changing.

Ford, for example, has previously stated that all electric vehicles sold at retail at the end of the lease will revert to Ford, and neither the lessee nor the dealer will be offered the right to purchase the used car. There are rumors that Ford is in talks to sell its non-lease vehicles through major online-only non-dealership used car marketplaces.

I don’t know if this rumor is true, but it is a fact that Stellantis in Europe and Africa is actively developing and promoting its new direct-to-consumer used car company, Auto24. Highlighted in a recent article by Wards, it was reported that Auto24, a subsidiary of Stellantis which sells used vehicles directly to consumers, has indeed entered into an investment agreement and partnership with Africar Group, an online retailer. non-dealer-affiliated used car market which is Africa’s leading online marketplace.

Remember that in May 2021, Stellantis canceled all European Union franchise agreements and invited all dealers to return under the “agency” model. The automaker has been aggressive in Europe with its used car brand Spoticar, which is something of an agency model for used vehicles listed on this online OEM platform, essentially forcing retailers who want sell Stellantis vehicles out of fleet/rental to open Spoticar branded physical showcases.

With Stellantis’ latest move with its Auto24 used car model to Africa, it’s not hard to see where this may be heading.

For those who say “it can never happen here,” note that over the past year or so, General Motors has created its own consumer-focused online used car sales portal, CarBravo, and Ford – the same Ford that advertised retail. EV rental vehicles will not be made available to the lessee or dealer for purchase at the end of the term – also has its own consumer-focused used car portal, Blue Advantage.

The scary thing is that if a manufacturer wanted to exert more force and control over the late model used car market, I’m not sure state franchise laws governing new car sales would bother them. Again, OEMs are the largest used car “manufacturers”, financing and owning hundreds of thousands of non-lease, non-fleet and non-lease vehicles. At the end of term these are used cars so any scrutiny or retail diktat is fair game as I think state franchise laws only focus on protecting vehicle sales new.

In normal times of supply and demand, the profit margin on used cars is traditionally much higher than on a new vehicle. Given recent global developments and the urge to emulate Tesla’s retail model, dealerships and professional dealer associations may want to focus more on trends in this industry.

John F. Possumato (photo, top left) is a lawyer and founder and CEO of DriveItAway, which provides a turnkey cloud platform/consumer app for dealerships to offer new mobility solutions, including subscription-to-purchase options for first-time buyers subprime mortgages and electric vehicles.

Share.

Comments are closed.