Used Cars: The Wild Ride that Could

As hard as we try to increase recall completions, there always seems to be a bump in the road. We may soon be in for a pretty big one from the used-car market and there are plenty of signs pointing to this having a major effect on both dealerships and consumers.

 

According to a recent article in Automotive News, here are four ways the scenario could play out:

 

  1. Rental Car companies filing bankruptcy – Federal law prohibits rental car companies from renting vehicles to consumers with open safety recalls. This was great for consumers as rental car companies had to complete the safety recall before they could get that vehicle back in service. In turn, consumers could rest assured that the rental vehicle was safe.

 

However, it is now expected that these bankrupt rental car companies will be forced to relinquish or liquidate their fleets due to a lack of travelers and reduced income. It is still NOT against the law to sell a used vehicle with an open safety recall. So, should the rental car companies go that route, these vehicles may ultimately end up in the ownership of consumers. And it is also likely that they will be sold with existing recalls left unrepaired. Considering that rental agencies account for 20-30% of all vehicle sales from manufacturers, that will be a lot of vehicles back on the road.

 

  1. Lease Returns and Repossessions – Recent circumstances have prevented consumers from returning leases after their maturity dates. Also, some consumers can no longer make payments on their vehicle loans. While most financial institutions work with these consumers, ultimately the bill will come due and leased vehicles will get grounded. This is another potential large group of vehicles that could end up in-market as used car inventory which is not required to have open safety recalls completed before sale.

 

  1. Wholesale and Auction Houses – Many dealerships that were forced to close will now open with a slew of vehicles destined for wholesale and/or auction houses. The scramble to unload these vehicles could further exacerbate the glut of available vehicles on the market which may end up in small used-car lots, buy-here-pay-here lots or independents.

 

  1. Dealer inventory – Similar to point #3, dealers could also have an inventory of front-line retail used vehicles they need to unload. A franchise dealer selling an off-brand used car may find it easier to simply sell it to a consumer, rather than sit on that vehicle until the safety recall can be completed and have the customer sign a disclosure stating that a recall exists (which has become more common lately).

 

These circumstances combined could very easily result in a glut of inventory across the board but, more importantly, a glut of used vehicles back on the road with open safety recalls. Hang on to your hats because this wild ride will probably get wilder before all is said and done.

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