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Taking on Water

It’s not a new problem, but the wholesale losses that have crept up on dealers in recent years have many of them caught up in a never-ending cycle of phantom profits, which disappear 60 days later when those trade-ins have to be disposed of at a loss because they didn’t sell.

Much of the blame for this epidemic can be directed at stair-step incentive programs that pressure new-car sales managers into selling vehicles at a loss. Compounding the problem are third-party sites that price vehicles unrealistically. And because of competitive pressures, dealers know they risk losing a sale to a competitor if they don’t make a deal. That’s when we start loading up the trades to make things work.

Yeah, we look good on our financial statement. Maybe we even hit our numbers and cash in on the manufacturer’s bonus. In the meantime, that trade-in is sitting there and no one is buying it. It’s not a loss yet, but everyone assumes it is worth what the dealer is in it for.

Read the whole article here on F&I and Showroom.

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