In addition to the obvious victims that being consumers, Volkswagen’s deception is causing very serious and real economic damages to a certain group of small businesses. And that is used car dealers who are left holding the bag because of Volkswagen’s deception. Those small business owners made economic decisions for their businesses, all the while unaware of VW’s deception.
The economic impacts are severe and clear. There is a daily cost for holding pre-owned inventory on a used car lot and used cars lose value while sitting on a used car lot. Profit margins for used cars dramatically decline after the vehicles are on a lot for more than 30 days. Further, there are costs incurred in holding vehicles in inventory. Dealers use formulas to determine the “Days in Stock Break – Even Point” which identifies the number of days a vehicle can remain in the used vehicle inventory before profitability on that vehicle hits a “break-even point.” Cars that cannot be sold in a certain time or at a profit are wholesaled at auction or sold to another dealer.
Automotive dealers pay cash or use debt (a “floor plan”) to finance their used vehicle inventory. Every day a car sits unsold on a dealer’s lot, there is a daily cost to hold that unsold car.
Most dealerships have a low threshold for adversity; liquidity and cash positions are affected very quickly. For example, having $200,000.00 in cash tied up in ten to twelve recalled vehicles that can’t be sold can cripple or ruin a dealership. Dealers that rely on debt (floor plan) to finance their dealership have even a higher risk and less ability to withstand hardship because payments to reduce the principal amount must be made on the balance of the unsold inventory. A dealership should not have any more money tied-up in inventory than is absolutely necessary. This is why dealers will sell vehicles to other dealers, even if they have to do so at a loss. This eases cash considerations even though the vehicle did not make a profit. Excess inventory levels have negative consequences on cash flow and, consequently, on the ability to meet the cash demands of an ongoing business.
Because of Volkswagen’s Stop Sales Orders, used car dealers had to pull popular models from their lots and have not even had the opportunity to sell the vehicles subject to the recall to the public, other dealers or auto auction houses. Thus, dealers’ money are tied up in inventory with no chance of a foreseeable return. If “floor planned,” the dealers have carried interest and other costs. If the inventory was financed with cash, dealers are unable to realize a financial return on the cash tied up in the unsold Volkswagen inventory. Automotive auction houses have, likewise, been forced to carry expenses on vehicles subject to the Stop Sale Order. Finally, there is now a stigma associated with Volkswagen vehicles and the values of the vehicles have dropped. All of these damages have been caused by Volkswagen’s deceptive actions.
These small business owners, like consumers, are negatively affected by Volkswagen’s deceptive acts and deserve compensation for their economic losses.