In the early days of the coronavirus pandemic, after used-car values plummeted and many dealerships closed, David Wilson went on a shopping spree. A large one.
David Wilson Automotive Group bought 700 used vehicles the week of May 18. Wholesale prices were still low but starting to rebound after plunging to their lowest point in April, according to J.D. Power.
Some retailers, with their lots full for the spring selling season, quickly moved to slash prices and liquidate their inventories in the early weeks of the crisis as shoppers stayed home and many state and local governments put restrictions on operations.
But Wilson went a different way. He had 2,100 depreciating used vehicles on hand at his 16 dealerships and lower customer traffic — but he knew he would need even more cars as business rebounded. That big purchase in May positioned his stores with 2,800 used vehicles as shutdown restrictions began to ease.
Purchasing in bulk as the market fell didn’t feel like a gamble after his experience during the 2008-2009 financial crisis, Wilson said. When new-vehicle sales — and consequently production of those new vehicles — abruptly plummeted during those years, dealers were left with fewer available vehicles coming to the used market in the early and mid-2010s when demand recovered.
David Wilson Automotive Group is No. 12 on Automotive News‘ list of the top 150 dealership groups based in the U.S., ranked by new-vehicle sales, and No. 35 on Automotive News‘ list of used-vehicle retailers. The group, which is based in Orange, Calif., retailed 44,390 new vehicles and 19,583 used vehicles in 2019. It has stores in California, Arizona and Nevada and one location in Mexico.
Like the Great Recession, the pandemic also forced automakers to shutter plants, and the two-month shutdowns this spring limited new-vehicle inventory. With fewer new cars available to buy and a high rate of customers with expiring leases opting to hold onto their vehicles, Wilson figured dealerships would have less opportunity to purchase trade-ins from shoppers.
And competition for used vehicles, indeed, spiked as the U.S. economy reopened. Prices at both retail and wholesale soared.
Wilson’s stores sold all 700 of the used vehicles purchased in mid-May in the 60 days that followed, he said. Wilson declined to comment on the profitability of those vehicles, but many retailers reported hefty gains in per-vehicle gross profits during this period.
To obtain the added inventory, the group’s dealerships bought every possible vehicle trade and scoured automakers’ online auctions for cars. They are employing the same tactics to replenish their stock of used vehicles as consumers buy cars off the lots.
“As a well-capitalized organization, we simply took advantage of a downturn in used inventory values, betting that the market would soon return,” Wilson said. “As we sold them, we replaced them. [Those 700 cars were] our shot-in-the-arm start.”
Today, David Wilson Automotive’s used inventory has more than 3,000 vehicles, almost 1,000 more than before the pandemic. Wilson said he plans to keep inventory in that range for the time being and is bulking up on external vehicle warehousing space.
Wilson rented a storage facility in Scottsdale, Ariz., and purchased property in Southern California to house additional used vehicles. He also paved and lighted a five-acre dirt lot contiguous to the group’s Las Vegas dealership to park used vehicles. He had been reserving the property to house a potential future franchise, he said.
“Space is a premium in these metro areas,” Wilson said. “We didn’t have room to stock more used cars because of the new-car inventory we had. As the new-car inventory dwindled, it gave us more room to stock more cars.”
The group is still buying every customer trade it can to maintain its larger inventory. And as new vehicles become more plentiful, Wilson anticipates a rebound in lease returns to help carry his stores through the winter.
“At Toyota Orange, my biggest store, we average about 300 lease returns a month. Those people are postponing their lease,” Wilson said in May. “People in April postponing till October; people in May postponed to November. I’m going to sell 600 cars in November, without opening the … doors, at one store.”
David Muller contributed to this report.