We at the Used Car Voice have been writing about the used car shortage for several years. For our most recent take see shortage of used cars – 2011 version. But, for the longest time, this dramatic change in the normal supply and demand dynamic went without notice in the retail automotive industry. However, CarMax has been one company that has consistently been ahead of the curve when dealing with our industry’s current used vehicle shortage.

CarMax’s CEO Tom Folliard has addressed the used vehicle supply constraints in every conference call for several years. In his most recent call, Folliard continued to stress how significant this used car shortage is by stating that, “we haven’t seen a supply-demand imbalance dynamic like we’re seeing right now.”

With the current supply-demand imbalance being so impactful on used car operations, dealers are searching for as many sourcing solutions as possible. Dealerships have been spending much more time and effort on sourcing used cars since this used car shortage began. However, many dealerships are still missing the mark and questioning how they can improve their sourcing. Well, the CEO of the largest used car company in the country just told everyone one thing that his company is doing to help reduce the effects of the current used car supply shortage.

Mr Folliard pointed out that his buyers are now purchasing a “little north of 30%” of all cars coming through their appraisal lane. This number is nearly an all time high for CarMax, and it emphasizes their dedication and approach to alleviating the used car shortage.

Some analysts will rightfully question the impact of this strategy on CarMax’s margins. However, this does not give proper consideration to the significant constraint that the used car industry has by not being able to simply just produce more used cars. Or to put it into the language of the car business… you can’t sell an empty space. Sometimes you have to step up and pay more money for inventory and during a dealership’s trade-in or appraisal process is a fantastic time to pay more for a vehicle.

Paying more for a vehicle that is at your dealership has one major significant advantage to overpaying for the same vehicle at the auction or through a wholesaler. You are going to make your customer happier than they would be with less money. Yes, a major side effect will be higher initial customer satisfaction and maybe even some positive word of mouth advertising.

Therefore, if your dealership is deciding how to replace the inventory you just sold during the Fourth of July weekend, look to seriously increase your sourcing percentage through your appraisal or trade-in process.

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