2007 was a year of credit implosions that left the used car industry shattered. While 2007 and 2008 were some of the used car industry’s darkest days, 2011 is shaping up to be almost as challenging as those trying times. Recently, the used car industry has been testing the skill and fortitude of every single used car manager. The used car marketplace of 2011 can be summed up in one word… shortage.

While it may be review for most used car professionals, it is still a valuable exercise to analyze how we got here, so that we can avoid similar situations (inventory shortages negatively affecting sales) in the future.
The used car shortage of 2011 was caused by several factors. These include, but are not limited to:

An ongoing reduction in bank and fleet vehicles available through the auction process.

A serious reduction in new vehicles produced in 2007 and 2008.

Americans adopt austerity measures.

Japanese tsunami and nuclear disaster.

Bank and Fleet Shortages

Purchasing used cars has never been more difficult. At the Used Car Voice we have been writing about the decrease in auction vehicles, due to a reduction in bank and fleet vehicles, for nearly a decade. This trend did not just start over night. It has been a national trend since the Millennium. Banks and manufacturers have tried to distance themselves from the leasing aspect as much as possible, which greatly reduced the used vehicles available for sale in the secondary market. Gone are the days when large banks would run 200-300 vehicles each week.

Very Few Vehicles Were Produced in 2007 and 2008

For those of you living under a rock, 2007 and 2008 were terrible years for the automobile industry. The credit bubble implosion left victims everywhere. No segment of the industry was spared. Manufacturers, retailers, wholesalers, parts suppliers, etc, all felt enormous amounts of economic pain during this time period. This crisis was so destructive that it resulted in the bankruptcy of 2 domestic manufacturers.
Needless to say, while a manufacturer is going bankrupt, they tend not to increase their production. In fact, all manufacturers throughout the globe reduced their capacity in 2007 and 2008. This lack of new car production has finally trickled through to the used car marketplace.

Americans Adopt Austerity Measures

The credit crisis has had an enormous impact on the psyche of the American consumer. Lone gone are the days of flipping rental houses and maxing out credit cards. Granted, most of this “austerity” has been driven by the banks unwillingness to make new loans. However, there is a growing trend in America to try and “live within your means”. For most people, this means extending the life of their used car. Instead of trading up or trading into a new vehicle, many consumers are choosing to repair their current vehicle. This trend can be seen in the sales volumes of all the major automotive repair facilities.

Japanese Tsunami and Nuclear Disaster

The tsunami and resulting nuclear meltdown in Japan shocked the world. Not only did it shock the world, it also shocked the entire automotive industry. Much has been written about the supply disruptions caused by this disaster. However, its importance cannot be understated.

The ramifications of the Japanese events are still being felt by used car professionals everywhere. By economic principle , when there is a massive reduction in the new car supply, used cars will become even more valuable. This tragedy has poured gasoline on an already hot used car market, driving used car prices sky high.

Unfortunately this used car shortage is here to stay, and it will have lasting effects on dealership’s profits. It will be a challenge for even the most astute used car manager to navigate these shark infested waters and provide their customers the inventory they desire.