Explaining Auto Finances and Why It’s Important to Buy in Bulk
Even with the possibility of a recession descending upon the American economy in 2023, automotive sales enjoyed a year-over-year boost for the period ending in October 2022. According to projections issued by J.D. Power and Associates, car buying should not be impacted as much as initially believed during the worst months of the coronavirus pandemic. With this in mind, let’s look at the process auto dealerships follow in order to meet demand:
Wholesale and Retail Business Models
In the world of automotive sales, dealers are not limited to a single business model. When you buy a new car from a licensed dealership, your purchase may have been facilitated by a wholesale or retail operation. Your own acquisition is at the retail level, but the dealer may have obtained the car from a wholesaler or through a concession from the automaker, which would also be a retail transaction. Dealers who stock their lots through wholesale bulk deals have a better opportunity to profit.
Wholesale Auto Inventories
When dealerships buy from wholesale specialists, they are in fact making bulk purchases. The inventories offered by wholesalers may include new and used models; the most common way to build these inventories is through bidding at auctions that are only open to registered wholesale agents. These inventories are in turn curated and prepared with the intention of attracting auto dealerships. Some wholesalers are known to cater to specialty dealers; for example, a dealer who only sells Ford Mustang models from all eras may strike a partnership deal with a single wholesaler who knows what to look at auctions.
Wholesale Auto Financing Solutions
The American auto sales industry runs on credit and financing at all levels. Wholesalers tap into special financing from commercial lenders in order to place their auction bids and build their inventories. In turn, wholesalers may offer bulk purchasing auto finance solutions to auto dealerships so they can stock their lots. This is known as a portfolio operation. To a certain extent, credit operations in this sector are more fluid when compared to consumer credit because vehicle titles serve as collateral, and they are fairly easy to guard and track down.
Additional Wholesale Services for Dealers
The profit margins for wholesalers are not as extensive as many people think. In order to generate solid revenue, wholesalers have to turn over inventories rather quickly in a competitive environment, but they can also offer value-added services to dealers for more profits. These services may include streamlining purchasing and title management.
The beauty of wholesale financing and servicing is that dealerships are able to focus on selling cars instead of worrying about complex financial operations. Compared to other business models, wholesale makes more sense for modern dealers.