According to a recent article in Automotive News, investors and car dealers have shifted their focus to the used-car space because dealers have more pricing and profit controls; something the digital retailing space is forced to focus on. With profit margins plummeting and new car sales expected to decrease, many are eyeing the pre-owned market. The financing firm Ally recently extended their deal with Carvana to provide up to $2.3 billion in financing while AutoNation invested $50 million in online used-car retailer Vroom!
Investors only put money into companies they believe will grow, bringing them a return on investment. That’s common sense. The fact that this is all happening with a focus on used cars – whether those are bought from an industry disrupter or a franchise dealership – speaks volumes. This shift in focus to used cars may be because of increased profit margins for these companies. But assuming this comes to pass, the biggest winners will be consumers. Why? Because as the volume of used car sales increases, legislators will be forced to shift their recall focus to used vehicles – the one area where dealers can still sell vehicles without fixing recalls.
And, when that happens, consumers will demand that legislators enforce many of the same laws which govern the sale of new vehicles with open recalls. Some say the fuse is already lit and it’s just a matter of time.
While it’s easy to see why legislators were comfortable banning the sale of new cars with open safety recalls (the selling dealership can repair them on their own), dealers with off-brands don’t have the same capability. They are forced to take their units to what could be a competitor for repairs and, perhaps, get pushed to the bottom of the list. Some industry pundits predict that dealerships will give priority to regular customers over competing dealers needing recall repairs.
Recall legislation will continue to protect new car consumers. However, it is in the consumer’s best interest for legislators to extend similar protections to buyers of used cars. As current trends suggest that the pre-owned market will soon make up a larger portion of overall vehicle sales, it’s easy to see the impending crisis for consumers, the industry and the government. If the purpose of legislation is to keep consumers safe (which is presumably why recall laws exist when it comes to new cars), then the same logic should apply to used car sales.
While I can understand how this could put a burden on dealers, there are ways to manage inventory efficiently without sacrificing consumer safety. Vehicles acquired via a trade-in or at auction can be checked for open recalls, with appropriate valuations to offset the burden of repairing the recall. Those acquired from auctions can be checked for open recalls prior to placing bids.
As the used car market continues to expand, our industry should consider the impact the practice of allowing unrepaired vehicles with safety recalls will have on consumer safety. As well as the potential legal liability presented by selling faulty products, along with the resultant damage to the integrity of the brand. Some dealers already refuse to sell vehicles with open safety recalls. It’s a mountain we can climb if, as an industry, we choose to do it together.