REAL DEAL AUTO BLOG

Will the Flop bring the river card, probably not..

Posted in Uncategorized by wolferadio11 on October 5, 2009

flopIt is the time of the season that used car prices fall off.  I began following the wholesale used car market in 1996.  I distincivily recall a dealer friend of mine, Jerry McKinney, explaining to me this time of year ‘son you better get your nuts in the nest, winter is a comin’  Translation: a dealer needs to convert any questionable inventory on today’s market to cash.  Then take a new position in fresh inventory after the flop hits. 

I coined the term ‘flop’ bc just like Texas hold em, it is an unknown set of cards that can drastically change your net worth.  Dealers have thousands-millions of dollars invested in used inventory.  When the market change arrives (typically around the Texas State Fair) the cash value of the inventory you are holding changes.  Just as a lake turns over every year, or the rain comes in April, the flop is coming. 

The reason I call it ‘the flop’ is bc it is sparratic, unknown in it’s severity, and very racial to it’s victims.  Typically the more expensive (over 27k) units take the first fall, then the edge mile domestics (over 50k).  This market adjustment also tends to occur in segments.  One segement of the market will fall, then another, then finally the cars that you thought held their value through the flop take a plunge.  Town cars, devilles, 4×4 late model low equipped SUV’s take a hit on the chops.  I’ve seen the flop take an immediate 10k of value away from a model, and I’ve seen it take nothing.  The difference between the good dealers and the not so good, is their decision making through this annual rapid run that we navigate.

I think this year will catch many with their pants around their ankles.  I think the 09 flop is going to hit much harder than anticipated, and wholesale loss from the dealer perspective will be greater than most are prepared for.  This years overly heightened market has been managed by the government.  Artificial insemination is for livestock, but this season Obama AI’ed the auto industry.   The NADA book increased an unprecedneted amount in Oct versus used car sales being off 40% in Septemeber across most of the US.  Old timers will manage it well, and I think the scientific managers may through their computeres out the window this season when the algorithms let them down.

There is an art to managing markets, computers help, alot, but do not out weigh experience.   Good luck and happy motoring.

JCFW

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