Navigating Car Inventory Shortages for Dealers

Dealerships need vehicle inventory to survive, so car inventory shortages like the current one can be alarming. These shortages squeeze dealerships and leave owners wondering whether they can keep their customers.

Luckily, there are ways for dealerships to push through car inventory shortages successfully and emerge on the other side with their businesses intact.

Why Is There a Car Shortage?

Since 2020, when the COVID-19 pandemic broke out in the United States, the vehicle market has changed significantly. The pandemic disrupted the vehicle supply chain, specifically the production of semiconductor chips used in vehicles, and led to much lower vehicle production during 2021 and 2022.

S&P Global estimates that vehicle manufacturers could not make over 10 million vehicle units due to this chip shortage¹. There was no replacement for these vehicles—a gap in vehicle production affects the current market.

Now, in 2023, the vehicle industry is essentially back to manufacturing at a typical pace. There is still some difficulty with the semiconductor chip supply, but manufacturers have had more time to adapt to this change successfully.

However, the effect of the previously slowed manufacturing remains. Particularly for used car dealerships, an apparent car shortage affects business. The availability of used cars, especially affordable ones, has not caught up with the recent return to full production speeds².

Tips for Dealing with the Car Inventory Shortage

How should a car dealership approach this car shortage? There are several approaches dealerships can take to manage the shortage and protect their businesses.

1. Emphasize Fixed Operations

If inventory is low, why not emphasize other avenues of your business that can bring in vital revenue streams? Fixed operations have the potential to boost revenue and profit for dealerships while they don’t have as many vehicles in inventory to sell. In 2019, fixed ops made up 49% of gross dealership profits³. Savvy dealership owners can leverage fixed operations to keep the money rolling into the dealership without worrying about acquiring more vehicle inventory.

Consider redirecting some of your dealership marketing efforts toward pushing your fixed operations. You’ll have less room in the budget to promote your vehicle inventory, but that may not be so bad if you can’t purchase enough vehicles to replace the ones you sell.

2. Perfect Your Customer Service

The quality of your dealership’s customer service can be the difference between making a life-long customer and never seeing someone again. While inventory levels are low, review your current customer service practices to look for areas you could improve.

For example, ensure your online customer service is as good as your team’s in-person service. Since 95% of vehicle customers use online resources to inform their purchases, providing your online customer service is as strong as possible⁴.

3. Focus on the Long Term

As tempting as it may be to think about the short-term future of your dealership, don’t fixate on the present. Now is a great time to lay the groundwork so that customers flock to your dealership when you have more inventory available. Make sure your team members are all up to date on the best sales techniques, consider updating your website, and tweak your marketing strategies to be more focused on the long-term health of your business.

4. Stay in Contact With Customers

If you don’t have enough inventory to satisfy your customers, some of them may feel inclined to start shopping at other dealerships. Don’t let your relationship with your customers fizzle out just because your dealership is struggling for inventory.

Make sure to follow up with existing customers by email or any other preferred method of communication. The occasional friendly message about what’s happening at the dealership or news about vehicles should help protect your dealership-consumer relationships.

5. Examine Your Sales and Inventory Data

The best way to make informed decisions about inventory purchases for your dealership is to look at your sales data. Analyzing this data should help you understand which vehicles sell best at your dealership and should be your focus when obtaining inventory during the shortage. With the help of some inventory management software, you’ll even be able to price your inventory better and reduce risk.

Sources: