It’s not just the retail operations of dealerships that are being impacted by the Takata airbag stop-sale.
There is also a “backlog” of cars that would otherwise be hitting the wholesale market, KAR Auction Services chief executive Jim Hallett said during his company’s earnings call Wednesday.
KAR is the parent company of auction company ADESA. During the Q&A portion of the company’s call, Hallett was asked by an analyst if the stop-sale grounding much of the used-car inventory for dealers was affecting KAR’s business in a measurable way.
“I’m not sure how we can quantify it. I can tell you, we do have some vehicles sitting in our inventory that are on recall … the vehicles in our inventory were really at the direction of the seller,” Hallett said.
“Some of these sellers want to hold the vehicle until the recall is completed. Other sellers will sell the vehicle with an announcement that it does have an open recall. And then obviously there are some cases where there are laws that prohibit you from selling cars at all, which are the rental vehicles.
“In terms of the dealers, and you talk about the stop-sales, I do believe their inventory is backing up on the dealers’ lots,” he said. “And I believe that there were a number of vehicles that the dealers were not able to ship to the auction, and as a result, there is a backlog. The good news is, at some point in time, the backlog will get released and these vehicles will make their way to the physical auction.”
Until then, they have to play the waiting game.
Much like the dealers and dealer groups.
At Penske Automotive Group, CEO Roger Penske said in last week’s quarterly call that about $57 million of the group's U.S inventory right now is on a stop-sale related to the ongoing Takara airbag recall situation.
At Asbury Automotive Group, the retailer is being affected to the point that some company stores are running out of available space to park impacted vehicles.
According to Asbury chief operating officer Hult, stop-sales tied up 10 percent or roughly $16 million of Asbury’s inventory in the second quarter. That’s up from $14 million in the first quarter.
About a third of the automotive group’s more than 80 stores are affected by stop-sales. At some stores, as much as 40 percent of inventory is impacted.
“We’ve been told by our partners that they’re going to take care of the customers first, inventory second,” Hult said. “We are being compensated.”
As far as how the OEMs are making up for vehicle depreciation, that varies, he said.
“Every OEM is different. On some of them, there will be no economic impact. On others, there will be probably some loss that we’re going to suffer by the time we get these lots cleared.”
How fast the lots get cleared, of course, depends on how fast the replacement airbags arrive. Recent estimates indicate that only a fraction of the 70 million or so recalled vehicles in the U.S. have been repaired.
“They’re (the airbags) coming in on a very light flow, but not what we expected by this point. And what we’ve heard most recently is we shouldn’t expect to see them in any kind of volume until later in the third quarter, potentially early fourth quarter,” Hult said.
Craig Monaghan, president and chief executive officer, chimed in on a scenario in which “40 percent of your inventory is on stop-sale, and we’re running out of space.
“In some cases, we’re looking for nearby lots to park these vehicles,” he said. “It has become very disruptive. But they are vehicles that, when we get the airbags, that we think are going to be very marketable. So we are holding on to them for the most part, and we’re just going to ride this thing out.”
The situation is similar over at Sonic Automotive. Executive vice president of operations Jeff Dyke pointed out he’s been with the dealer group for 11 years and can’t remember a quarter when a single factor impacted used-vehicle retail sales as much as the stop-sales associated with the Takata situation.
“We can’t get the airbags in fast enough to get them out on the lot and ready for sale so it's certainly playing an issue here,” Dyke said.
“We are starting to see the light at the end of the tunnel,” he continued. “Hopefully in particular with BMW and Honda, we’ll get that cleaned up here in the coming months and put this behind us. But it certainly has been a bit of a challenge for the stores.”
Moving to AutoNation, CEO Mike Jackson said roughly 20 percent of used-car inventory is on hold due to open recalls, 75 percent of which are Takata-related.
He believes that used inventory on hold will peak toward the end of the year, but the thing is, VIN numbers of impacted vehicles are still coming in.
The good news, Jackson said, “is that devices are beginning to arrive. And we’re at the point with certain manufacturers where we can batch-order devices and not go VIN by VIN. And we’ll begin to repair those vehicles, we’ll begin to sell those vehicles and we’ll begin to recognize the compensation that is due on those vehicles from the manufacturers … that would tend to say the worst is over.”
However, Jackson said, there were millions more Takata airbag-affected vehicles announced in the second quarter. And AutoNation does not have the VINs on those yet, Jackson said. Those are scheduled to arrive in the second half of the year, with parts coming in the first half of 2017, he said.
In other words, the coast isn’t clear. As Jackson said, “we’re going to repeat this whole movie over again for this next wave.”
Staff Writers Sara Schweiger and Nick Zulovich contributed to this report.