With no end in sight for the ongoing novel Coronavirus pandemic, at least from a medical perspective, one must start to wonder how long car dealerships can afford to keep their inventory idle. And that’s with only 1 in 4 Americans under ‘shelter in place’ orders right now. Can you imagine what will happen if more places enact similar restrictions? That’s something no one wishes to see happening, but at this point, we can’t exclude it either.
Now, if you’ve begun drawing parallels between what’s happening today and the Great Recession from nearly 13 years ago that devasted global markets, well, know that you’re definitely not alone. Back then, the recession in the U.S. officially started towards the end of 2007 and lasted until June of 2009, though unofficially, the effects of the downturn were felt for many years after, not only in the States, but other countries around the world too.
One person who deemed it necessary to talk about their experience during those harsh times is a former Acura new car sales manager under the username ‘zachshefska‘ who recently took to Reddit in order to share what happened not only at their dealership, but across the country.
You can the entire post right on Reddit here or below, but in the meantime, we’ll extrapolate certain paragraphs that could resonate with anyone currently employed at a new car dealership, working on commission.
“Our business at the Acura store was cut in half by the time I was let go in June of 2008. We had been selling 100 new cars a month two years prior. When they let me go, we were selling 50.”
“I remember looking at my new car inventory six months prior and noticing that there were some alarming issues. The turn rate of how fast we were selling cars was changing dramatically. My days supply by model was increasing at an unsustainable rate. I always tracked my rolling days supply of inventory based on what I had on hand versus what I was selling, and I started seeing the spike in late 2007.”
“By early 2008 Acura was pushing more and more cars on their dealers, especially TL’s, to get them out of their inventory and into ours. My days supply for a TL was approaching 120 days. This meant that if I didn’t receive another car from Acura, it would take me four months to sell out my inventory. For reference, we preferred a 45 day supply because it would keep our carrying cost down.”
After leaving the Acura dealer, our protagonist kept an eye on his former employer’s new car sales volume, which continued to decline – in August of 2008, that particular dealership allegedly sold just 15 new cars, a monster 85% decrease compared to the same period two years prior.
Of course, the current situation is quite different compared to what was happening in late 2007 and throughout 2008. Yet, there will inevitably be a shortage of buyers as more and more people begin to avoid going outside for anything other than making vital purchases such as food or medicine. If you’re a new car dealership, it almost doesn’t matter why a person isn’t walking through your door right now; the fact that they’re not coming (for whatever reason) is what’s going to impact you financially.
Sure, this could be contained in a few weeks and things might start going back to normal, but if the pandemic proves more difficult to overcome – meaning it either survives the summer or comes back strong later in the year, then that’s something car dealerships need to prepare for, and either offer online solutions or come up with some massive discounts.
Last month, China took in 80% fewer new car registrations while people were in quarantine, which spells gigantic trouble for anyone currently working on a showroom floor.
And that’s only the short-term consequences, because if this situation, as many economists warn, throws us into a lasting deep recession for many months, then there’s no predicting what the full magnitudes of the damages will be.
Here’s Reddit user ‘zachshefska’s full post:
What it was like to be an Acura New Car Sales Manager during the 2007 Financial Crisis
I thought this reflection on what the 2007 financial crisis was like (from the perspective of a new car sales manager at an Acura dealership in Arizona) would be interesting to consider today…
The great recession that started in 2007 was a self fulfilling prophecy. News reports kept coming out about how there was a downturn in the economy and that the financial markets were in trouble. All those reports scared the hell out of people. Customers stopped spending money, they stopped buying big ticket items, they learned to do with what they already had.
I remember telling customers, “you have a moral obligation to keep buying cars and spending money because if you don’t then all the reports about a bad economy will come true. Each one of us has to do our share to keep the economy strong, and when everybody pulls back at the same time a recession becomes a reality.”
Our business at the Acura store was cut in half by the time I was let go in June of 2008. We had been selling 100 new cars a month two years prior. When they let me go, we were selling 50.
I remember looking at my new car inventory six months prior and noticing that there were some alarming issues. The turn rate of how fast we were selling cars was changing dramatically. My days supply by model was increasing at an unsustainable rate. I always tracked my rolling days supply of inventory based on what I had on hand versus what I was selling, and I started seeing the spike in late 2007.
By early 2008 Acura was pushing more and more cars on their dealers, especially TL’s, to get them out of their inventory and into ours. My days supply for a TL was approaching 120 days. This meant that if I didn’t receive another car from Acura, it would take me four months to sell out my inventory. For reference, we preferred a 45 day supply because it would keep our carrying cost down.
In early 2008 I had made arrangements to sell 30 excess TL’s to some dealers in California to help reduce my inventory level. The GM of my dealership, and the area VP asked me to check with our Zone Manager to get his thoughts. Of course the Zone Manager was against my plan. He emailed his displeasure to both the GM and the AVP, and because of his email they told me not to do it.
Three weeks later the shit was starting to hit the fan and it was becoming more apparent to everyone in the industry that we were headed for trouble. The AVP told me to go ahead and sell the cars.
I called and contacted dealers all over the country, but to no avail. I had neither retail or wholesale customers for these cars. We were stuck with our bloating inventory just like everyone else.
Months later I was offered the option of working as a salesman at any of our local stores or a financial compensation package for leaving the company. I took their $23,000 and struggled to find meaningful employment.
After leaving the Acura dealership, their new cars sales volume continued to decline. In August of 2008 the Acura store sold 15 new cars, an 85% reduction in sales from two years prior. Car sales were off substantially nationwide, and the major automobile manufacturers required billions of dollars in government bailouts in order to survive.
We moved to Maryland because in Maryland the decline in sales was much less severe than it was in Arizona, down 35 to 40%, and there was actually an opportunity to restart my career.
What is going on today is totally different, the collapse in the world economy is based on health issues that we don’t know how to combat yet. It is forcing most countries to curtail person to person contact which will impact businesses both large and small. It will impact how (and if) people shop. It will force people to remain at home and put off major purchases.
After all, do you really need a new car if you are now spending the bulk of your time holed up at home? Restaurants, bars, hotels, casinos, stadiums, airports, train and bus stations and any venues where people would normally gather in mass will be shuttered for quite some time, and the effect on the economy from things like that will be more like a tsunami than a ripple.
Perhaps in three to four months businesses will begin to recover, people will once again gather in large groups, and life will hopefully return to some degree of normal, but the damage done will have been catastrophic. The road to economic recovery will be a long one, but one that we have all traveled before and we will survive and once again thrive.