The Growing Used Vehicle Market May Be Great for Consumers

According to a recent article in Automotive News, investors and car dealers have shifted their focus on the used-car space because dealers have more pricing and profit controls; something that the digital retailing space is forced to focus on. With profit margins plummeting and new car sales expected to decrease, dealership 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! to give it a 7% stake in the company.

This sequence of events provides some insight on where the industry is headed.  First, investors put money into companies that they believe will grow and bring 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. The focus on sales shifting 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 focus on recalls towards used vehicles – the one area where dealers can still sell cars without fixing recalls.

And, when that happens, consumers will force legislators to enforce many of the same laws that govern the sale of a new car with an open recall.  Some say the fuse is already lit and it’s just a matter of time.

While it’s easy to see why legislators were fine with 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.  A competing dealer is forced to take their units for sale to what could be a competitor to get repaired and, perhaps, get pushed to the bottom of the list.  Some industry pundits predict that dealerships will give priority to regular customers to get those repairs handled. As used car sales blossom in the market with lenders, online digital retailing services and even franchise dealers, consumers will be increasingly at risk when buying a used vehicle.

While recall legislation will continue to protect a declining number of new car consumers, it is in the consumer’s best interest in terms of safety for legislators to extend similar protections to buyers of used cars.  As the trends suggest that a larger part of car sales overall will come from the pre-owned market, 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 dictates that legislators would be using similar logic when it comes to used car sales.

While I can understand why this could put a burden on dealers, there are ways that dealers can manage inventory efficiently while never sacrificing consumer safety. Vehicles acquired at trade-in or at auction can be checked for open recalls, with appropriate valuations to offset the burden of repairing the recall. Those vehicles acquired from auctions can be checked for open recalls prior to bids being placed. If dealers and legislators choose to protect the safety of their customers, there are ways to both safeguard investments that may take time to fix or avoid those vehicles altogether.

As the used car market continues to expand, our industry should be considering what the impact of allowing unrepaired vehicles with safety recalls will have on consumer safety, legal liability for faulty products, damage to the integrity of the brand, and whether the dealership wants to take a proactive stance on recall management. Other dealers have already refused to sell vehicles with open safety recalls. It’s a mountain we can climb if, as an industry, we choose to do it together.