How Dealerships Get Their Vehicles: Inside the New and Used Car Supply Pipeline

Dealerships acquire vehicles through a mix of manufacturer allocations and orders for new cars, and a wide array of channels—auctions, trade-ins, off-lease returns, rentals, fleet sales, and direct purchases—for used cars. In practice, the flow depends on franchise agreements, market demand, financing arrangements, and logistics that move vehicles from factories and sellers to showroom floors.

The New-Car Pipeline: From Factory to Showroom

For franchised dealerships (those authorized to sell a specific brand), new vehicles arrive through a manufacturer-controlled pipeline. While specifics vary by automaker, the process generally follows a consistent set of steps shaped by contracts, state franchise laws, and market conditions.

Here are the major steps that typically bring a new vehicle to a dealer’s lot.

• Allocation: Automakers allocate build slots and incoming inventory to dealers using formulas tied to sales performance, market size, model mix, and customer orders.
• Dealer Ordering: Dealers submit orders—either to stock popular configurations or to fulfill customer sold orders. Priority often goes to sold orders.
• Production and Logistics: Vehicles are built, then shipped via rail/truck (or ship for imports) to regional distribution centers or ports.
• Port/Pre-Delivery: Accessories may be installed, software updated, and quality checks performed; units are assigned to retailers.
• Transportation to Dealer: Vehicles are trucked to the dealership; timing varies with carrier capacity and distance.
• Pre-Delivery Inspection (PDI): Dealership technicians complete OEM-required checks before retail delivery.
• Dealer Trades: Dealers swap units among themselves to match customer preferences and close sales faster.
• Demo and Service Loaners: Some units are put into demo or loaner fleets before retail sale, often later sold as lightly used or certified.

This process is highly scheduled but not rigid: dealers can influence mix with orders and trades, and manufacturers can adjust allocations based on demand spikes, supply constraints, or model-year transitions.

How Used Cars Reach the Lot

Used inventory is the lifeblood of many dealerships, with diverse sourcing strategies that balance volume, reconditioning costs, and profit margins.

These are the main channels dealerships use to acquire used vehicles.

• Trade-ins: Customers trading vehicles during a purchase; appraisals are often aided by market data and inspection tools.
• Off-lease Returns: Vehicles coming back from captive finance company leases; many feed Certified Pre-Owned (CPO) programs for franchised brands.
• Auctions: Physical and digital auctions (e.g., Manheim, ADESA, ACV, BacklotCars) where dealers bid on wholesale units.
• Rental and Fleet Remarketing: Large fleets (rental, corporate, government) sell used units directly to dealers or through auctions.
• Service-Lane Acquisitions: Dealers buy cars from service customers whose vehicles are desirable or who are ready to upgrade.
• Direct Consumer Buys: Dealers purchase cars directly from consumers via online appraisal tools or instant cash offers.
• Repossessions and Specialty Sales: Lenders dispose of repossessed vehicles at auction; some dealers buy salvage or branded-title cars for parts or specialized resale.
• Wholesaler/Broker Networks: Independent wholesalers connect supply and demand across markets, especially for niche models.

Dealers mix these sources to manage age, mileage, and mix by model and price point, aiming to meet local demand while controlling reconditioning costs and days-to-turn.

The Money Behind the Metal: How Inventory Is Financed

Car inventory is capital-intensive, so most dealerships rely on specialized financing to carry vehicles until they’re sold. Understanding these terms explains why dealers care about sales velocity and allocations.

Key financing and accounting mechanisms include the following.

• Floorplan Financing: Short-term credit lines (from captive or third-party lenders) that fund inventory; dealers pay interest until the car sells.
• Curtailments: Scheduled partial paydowns on aged inventory that increase carrying costs over time.
• Holdback and Incentives: Automakers may pay dealers a holdback (a small percentage of MSRP or invoice) and offer volume or model-specific bonuses.
• Dealer Cash and Spiffs: Periodic incentives meant to move certain trims or model years faster.
• Aging Policies: Internal targets (e.g., 45–60 days to sale) to limit interest expense and depreciation risk.
• CPO Costs: Reconditioning, warranty enrollment, and inspection costs that can raise resale value but reduce gross margin.

These mechanisms align dealer behavior with faster turnover: the longer a vehicle sits, the more it costs, pushing pricing adjustments or wholesale disposition.

Allocation Dynamics, Ordering Trends, and Market Shifts

Since the pandemic-era shortages, inventory has been normalizing in the U.S., but allocation strategies continue to evolve. Many brands prioritize customer sold orders, especially for high-demand trims and EVs. Constraints—semiconductors, batteries, or specific options—still shape build mixes for some models. Meanwhile, digital wholesale platforms and data-driven appraisals have sped up used-vehicle sourcing and pricing.

Franchise Laws and Direct Sales

In most U.S. states, franchise laws require that new vehicles be sold through franchised dealers. Some EV makers use direct-to-consumer models where permitted, but even then, many states limit or regulate direct sales. For traditional brands, the franchise system governs allocations, warranty service obligations, and branding standards.

Build-to-Order and Custom Configurations

Customer factory orders have become more common, reducing lot glut and aligning production with demand. Dealers manage these orders alongside stock units, often using them to improve allocation priority and customer satisfaction.

Transport and Logistics: The Last Mile

Moving cars is a specialized operation coordinated by carriers and OEM logistics partners. Seasonal spikes, weather disruptions, port congestion, and regional rail capacity can shift delivery timelines by days or weeks. Dealers may opt for expedited trucking on high-priority or sold units to hit delivery dates and incentive windows.

Why Dealer Trades and Regional Networks Matter

Dealer trades help align the right car with the right customer without waiting for a new allocation. Regional networks and manufacturer portals facilitate trades, while transport costs and timing determine whether a swap makes financial sense.

What This Means for Buyers

If you want a specific configuration, a dealer can often secure it via factory order or trade. For used cars, supply quality depends on local trade-ins, off-lease cycles, and auction availability. Pricing reflects acquisition costs, reconditioning, and time-on-lot pressure, which is why older inventory may be discounted as curtailments kick in.

Bottom Line

Dealerships source new vehicles through manufacturer allocations and orders, and used vehicles through trade-ins, off-lease streams, auctions, fleets, and direct purchases—financed largely by floorplan credit and shaped by allocation policies, logistics, and incentives. The mix changes with market conditions, but the goal is constant: get the right vehicles on the lot, quickly and profitably.

Summary

Franchised dealers receive new cars via manufacturer allocation, dealer orders, and trades, moving through factory, port, and transport steps before pre-delivery inspection. Used inventory comes from trade-ins, off-lease returns, auctions, fleets, direct consumer purchases, and wholesalers. Floorplan financing, incentives, and aging policies drive turnover. Shifting market conditions, franchise laws, and growing build-to-order practices shape how—and how fast—vehicles reach the showroom.

What is a red flag in a dealership?

So here it is red flag number one the dealer won’t give you an OTD. Price that’s the outdoor. Price this is not illegal.

How do they get cars in the dealership building?

On the first floor car dealerships usually have a garage door in the back and cars just drive in. Some dealerships have removable windows on the top floor, so the cars are being put there by the crane, others have an elevator.

How do car dealerships get their cars?

Dealerships can buy the cars on their lots from several sources ranging from trade ins and auctions to purchasing directly from the manufacturer. Most car dealerships acquire their vehicles using a tool called “floorplan financing”.

How are cars transported to dealerships?

Most vehicles travel by truck at some point during transport, especially during shipments to small-town dealers. These car haulers are usually double-deck trailers that can hold about 12 vehicles. Car haulers have ramps that raise and lower to ensure smooth and quick loading.