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David Mittleman
David Mittleman
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Consumers Not the Only Victims of Volkswagen’s Deception

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Small Businesses Hurt by VW Emissions Scandal

The Volkswagen emissions scandal has created a great deal of hype and outrage. For some background, read my post from last week. As my Injury Board colleague in Baton Rouge astutely pointed out, consumers are not the only ones affected by Volkswagen’s deception and subsequent recall. Small businesses, mainly used car dealerships, will also suffer.

Used car dealerships make the decision to purchase cars, or inventory, with the goal of selling them as quickly as possible. Dealerships who purchased used Volkswagen vehicles for their inventory, unknowingly buying vehicles that would later be tainted by VW’s deception and recall.

Financial Hardship for Used Car Dealerships

Used car dealers who made the decision to purchase Volkswagen vehicles to sell at their dealerships prior to the scandal are now holding cars they can’t sell, with costs associated–costs that increase with each day the cars aren’t sold. Just like consumers, dealers choose their inventory based on makes and models they think

Each car on a dealership lost has costs associated with each day it goes unsold- they must be insured, cleaned, and maintained, among other things. Each is purchased with either cash or credit. Additionally, used cars lose their value while sitting on a used car lot for an extended period of time. Profit margins for used cars begin to dramatically decline after the vehicles are on a lot for more than 30 days.

The “break-even point” formula is used to determine the number of days a vehicle can remain in the used vehicle inventory before it loses profitability. Cars that cannot be sold in a certain time period or at a profit are wholesaled at auction or sold to another dealer.

Having cash tied up in recalled vehicles that can’t be sold could financially cripple a dealership. Dealers that rely on credit to finance their dealership have even a higher risk and less ability to withstand hardship because they do not have the expected cash coming from sales to make payments on debt.  A dealership avoids having any more money tied-up in inventory than is absolutely necessary.

On September 20, Volkswagen announced it would stop U.S. sales of all VW vehicles with 4-cylinder diesel engines, used or new.  As a result, used car dealers were forced 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.

As a result of the stop sales, used car dealers have funds tied up in inventory with no chance of a foreseeable return. Dealers who buy inventory on credit have interest and other costs associated with holding the cars.

There is now a stigma associated with Volkswagen vehicles and the values of the vehicles have dropped, this affects used VW models that may not have been recalled. All of these damages have been caused by Volkswagen’s deceptive actions. During September, typically a popular car-buying month, Volkswagen new and used sales suffered while overall, U.S. auto sales “soared.”

Used car dealers are small business owners in our communities. Like consumers, these small businesses are affected by Volkswagen’s deceptive acts and deserve compensation for their economic losses.