By Sean Reyes, Chief Marketing Officer, Recall Masters

Despite the pandemic, consumers are still in-market for vehicles. At one point, manufacturers had to slow production due to local and state regulations. As a result, some dealers have been struggling to maintain a full inventory of vehicles to offer car shoppers. Of course, dealerships cannot control when (or how many) new vehicles they receive from their OEM, so many dealers are increasingly turning to the acquisition of pre-owned vehicles.

The Current Situation – Used Vehicles: A Whirlwind of Supply and Demand

Previously, dealers had several options available to acquire used vehicles, including through trade-ins, but now are forced to focus more on auctions for vehicle acquisition. And at the same time, consumers currently are setting their sights on used vehicles, which has caused a whirlwind of supply and demand.

As used vehicles become more attractive to consumers, it forces dealers to acquire more used inventory to meet that demand.

This perfect storm has led to dealers having to overpay for used vehicles at online auction sites, which of course, drives higher prices. It is so bad that, in some cases, larger dealer groups are even actually bidding for the same vehicles against themselves! Nowadays, it is not uncommon to see a CarMax, Carvana, or other large dealer group outbidding one another, while smaller dealers have to put the brakes on in frustration.

When a dealer does acquire a vehicle at auction, just as it has always been, they have to sell that vehicle as quickly as possible to avoid increasing vehicle cost from floorplan interest.

And therein lies the problem.

Paths to Revenue in Sales and Service

Dealerships need to stay in business, and the only way they can do that is through two main revenue sources: sales and service.

Let’s focus first on sales. With dealerships needing an ample pre-owned inventory supply and having no choice but to overpay for those vehicles, what that means is, they must sell those vehicles quickly. Some dealerships sell those vehicles as fast as they get them. While that is great as a revenue stream, it may not be so great for the consumer. If dealers are selling pre-owned vehicles within days of getting them, they most likely do not have the time to repair any open recalls before the sale. As a result, in some cases, consumers are buying and leaving the lot with unsafe vehicles that are potentially deadly.

At times, dealers have had to sell the car first and then invite the customer back to get the recall repair completed. Yes, it is legal. However, at the state level selling a used car with an open recall is a legal liability under unsafe product laws, should that unrepaired recall lead to an accident.

When it comes to service, dealerships also have a difficult (albeit different) path. Service revenue is not only produced by regular maintenance and normal warranty issues but also recall repairs. Currently, 48 states mandate the OEM reimburse the dealership at retail rates. That is good money!

While service departments may be enjoying plenty of business, many are missing out on revenue guaranteed by the manufacturer as a result of the sales department selling vehicles faster than they can repair them. There is no guarantee that a consumer who purchases a vehicle with an open safety recall will return to the dealership to have the safety recall repaired. These consumers may have it repaired at a more convenient competitor or, even worse, never.

Used Car Calamity

The potential of a used car calamity is akin to a snowball rolling down a hill. The further it travels, the more snow it gains and the faster it goes, exacerbating the issues. We are already seeing recall repair completion rates decrease while at the same, the numbers of recalls are increasing. You can attribute this to the accelerated demand for used vehicles.

If this continues, we will see more unsafe cars on the road – and that is what our mission is to avoid.