America’s car dealers started July with a shocking oversupply of new cars to sell. But only part of the backlog is real. Part is likely due to dealers slowly catching up on inputting deals they made on paper when a major hack took their computer systems offline last month.
Dealers Were Already Over Target When Problem Started
Car dealers measure their supply of cars to sell using a metric they call days of inventory – roughly, how long it would take them to sell out of cars at the current sales rate if they couldn’t acquire more. An old industry rule of thumb tells them to aim for about 60 days.
Related: Average New Car Price Held Steady In June
Less than that, industry wisdom says, means dealers risk not having a combination of colors and features in stock that appeals to buyers. Having too few could result in losing business to the competition.
But they don’t want to carry more than necessary because dealers generally don’t own the cars on their lots. They’re making payments for them through a complex loan arrangement. The longer a car sits unsold, the more it costs the dealership. Too many cars on a lot risks costs so high that dealers can’t profit.
Dealers started June with, on average, 74 days’ worth of cars in stock — a bit more than ideal.
Then, the hack started.
Then Hackers Wrecked The Count
In mid-June, a ransomware attack wrecked the system dealers use to keep track of cars.
Today, most dealerships use an industry-specific software package to manage nearly every aspect of their business. There are several major providers of dealership management services software — systems that handle everything from tracking inventory to paying salespeople.
One of the largest was offline for nearly two weeks thanks to a ransomware attack.
Most affected dealerships didn’t go two weeks without selling a car. Instead, they reverted to old-fashioned pen-and-paper sales.
When dealers regained control of the software, they had two weeks’ worth of business to input into it. That is taking time. Many are still trying to update old sales during the downtime between new sales.
Backlog Probably Not as Bad as It Looks
Kelley Blue Book’s parent company, Cox Automotive, tracks a wealth of data about the car industry. Cox Automotive reports that the average car dealership reported a jaw-dropping 116 days of inventory as of early July — the highest number since 2020.
Some of the backlog is probably real. Sales slowed when dealerships had to work with pen and paper, and trucks kept delivering cars to lots.
But some of it is likely an illusion, created because dealerships are still inputting sales data from the period when the software was down.
Discounts Will Be Hard To Predict This Summer
Dealerships discount cars when they’re overstocked — better to sell a car for very little profit than to keep making payments on it and turn it into an escalating sunk cost.
But it’s hard to tell precisely which dealerships are overstocked when the count is inaccurate.
Certain trends that have held throughout 2024 are likely still with us. Toyota, Lexus, and Honda have had a lower supply than they’d like all year, and they aren’t offering major discounts.
Stellantis, parent company of brands including Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, and Ram, has had about twice as much inventory as it should for much of the year. Those dealers have been discounting aggressively.
Shoppers can probably count on those trends continuing.
However, a Cox Automotive analysis shows inventory measures are “expected to normalize over the next two months.” It could be early fall before shoppers can get reliable intelligence on what kind of discounts to expect.
A confusing market rewards determined buyers who take their time and shop many options. In late summer, shoppers should be prepared to move slowly and talk to many dealerships to find a good deal.
