Archive for the ‘Used Cars’ Category

Feeling Used: Shortage of Used Cars Fuels Auto Buyers’ Plight

by Mary Wisniewski

“Inventory gets smaller and smaller every week. You can [still] grab what you want. It just takes more work to find good cars.” — Ward Fleischmann, General Manager, Seattle’s Best Cars

If the auto industry had a theme song for this past year, it would be The Temptations’ “Ball of Confusion,” says Harry Seretti, a car buyer for a dealership.

Why? Beyond unemployment hovering around 10 percent and spandex-tight credit, used-car buyers face the extra hurdle of soaring price tags because of limited supply. Translation: The used-car
industry has defied the recession shopping odds. In short, it’s not a buyer’s market.

Indeed, roughly eight million fewer used cars and trucks entered the U.S. market in the past two years, according to the December data from AuctionNet, a joint effort of the NADA Official Used Car Guide and the National Auto Auction Association Services Corp. Fewer new vehicles, in turn, mean fewer used cars, and limited stock means higher price points. The Manheim Used Vehicle Value Index soared to 118.1 in February, up 12.6 points from the same month of 2009.

“We’ll start to see an ease to the used-car shortage, but it will be several years before the supply returns to the average of the 1998-2007 period of strong new-car sales,” said Paul Taylor, NADA chief economist, in a statement.

In other words, an auction these days is like a New York City Foley & Corinna sample sale, but instead of hordes of females fighting over cheap frocks, dealers are battling for more-expensivethan- normal cars.

Seretti, who buys for Hickory, Pa.-based Corwin Sales & Service, says the Manheim auction he typically attends has been running six to seven lanes per auction, compared with 14 to 15 lanes previously.

“Half the doors are shut,” Seretti says, explaining this forces him to pay more per vehicle. “You have to have something on the lot. You can’t sell air.  That said, Seretti says he has become a more selective buyer, targeting late-model vehicles in particular. “We do pretty well with pre-owned Jeeps and Ford Escapes,” he says.

Shopping is a Battlefield

Beyond higher price-point woes, lending draughts and the escalating unemployment rateare exasperating the used-car buyer’s shopping experience.

“Banks are a big problem,” says Bruce Patchett, who helps buy inventory for the Bruce Auto Mart in Hillsboro, Ore. In particular, the hefty payment banks now require upfront from consumers is curbing car sales. Credit unions, meanwhile, have provided some solace for Patchett, with their more flexible and liberal terms.

And like Seretti, Patchett views an auction more like a battlefield these days as he pays steep prices to get quality cars.

“It’s definitely a challenge to find vehicles thatare higher quality,” says Mary-Beth Kellenberger, global aftermarket program manager for Frost & Sullivan’s automotive and transportation division. “We suspect that vehicles being moved into remarketing systems are older than what they have been and are not maintained as well,” Kellenberger says, adding that limited supply of used cars, coupled with a questionable economy, is making shopping competition fierce.

Kellenberger anticipates finding quality cars to remain challenging heading into 2010, if not even a little more difficult than in 2009. But extra hardship doesn’t mean dealerships are drastically changing their shopping strategies from previous years. Consider Seattle’s Best Cars, formally known as Saturn of Renton, in Washington. Although it has morphed into an independent for now, its shopping strategy is largely unchanged. The only difference? The time requirement. “We’re trying to find good used cars,” says Ward Fleischmann, general manager. “We’re at auctions every week and online buying every single day…Inventory gets smaller and smaller every week. You can [still] grab what you want. It just takes more work to find good cars.”

Dealerships cite Cash for Clunkers as one culprit for limited used-car inventory.

“What killed the whole business is Cash for Clunkers,” Seretti says, explaining that the government initiative encouraged many people to simply overbuy.

Seretti isn’t the only one bemoaning the C4C aftermath. The National Independent Automobile Dealers Association, for another, hasnoticed an uptick of buyer’s regret perpetuated by C4C’s enticements.

Buyer’s remorse is three to five times higher than it was before Cash for Clunkers, says Michael Linn, executive vice president and chief executive of the NIADA.

“People are stuck with new car payments,” he says. “There are a lot of delinquencies. A lot of [consumers] thought things will get better. Now, they find themselves laid off.”

The Source

To overcome any lingering C4C strife and track down quality vehicles, dealerships are relyingmore on inventory-management systems andresearch skills. Seattle’s Best Cars’s Fleischmann, for one, depends on vAuto and the Internet as his main sourcing tools. Typically, he spends an hour or two online everyday researching inventory. His other sources? Primarily Manheim, with additional guidance coming from other industry guidebooks like Kelley Blue Book. “Manheim is usually a good gauge of what people are paying,” says Fleischmann. And Manheim is offering dealers new ways to tap into its information.

A mobile version of its Manheim Market Report meant to help on-the-go dealer customers with their research launched last February. Adam Thrasher, sales and service operations manager at VW Hyundai of Murfreesboro, in Tennessee, was one of the product’s beta testers and says the tool is easy to use. Most importantly, the mobile app saves Thrasher time — when he attends auctions, he can remain outside to scope out inventory. Without a mobile app, he would have to go inside the auction house to research a car’s details.

“You can have all of the information within 30 seconds to a minute,” he says. Not only is Thrasher turning to tools like this one, but he is also expanding his search radius and looking at every possible sourcing avenue because of the used-car deficit. Specifically, he uses Enterprise, Hyundai auctions, OVE, Openlane, and referrals from his auction reps, to name a few.

“The more resources I have to try to find cars, the better I am,” Thrasher says.

Beyond inventory-management systems and Internet resources, quality condition reports are also helping dealers source vehicles, says Ricky Beggs, managing editor of Black Book. “It’s been a key this past year,” he says, explaining that condition reports have become thorough, accurate, and easy-to-read.

Finally, never underestimate the importance of luck when shopping. “You just roll the dice,” says Corwin’s buyer Seretti. “Buy cars and do the best [you can].”

Used Cars: Dealers Refine Tactics to Sell Trade-Ins

by Marcie Belles

Gone are the days of waiting a week or two to sell trade-ins at auction. With used cars in short supply, dealers are honing their strategies for selling unwanted vehicles right off their lots.

Take the John Eagle Auto Group, for instance. Toward the end of each month, the trade desk at the Dallas-based chain swings into action.Trade-ins on a lot more than 45 days are at thetop of the list to be sold to another of the group’s 14 dealerships. “It becomes our own internal auction,” says Jim Flint, corporate director of interactive sales and marketing for the John Eagle dealerships.

Each of the group’s stores — which include Acura, Aston Martin, Honda, Mazda, Scion, Toyota and Volkswagen franchises — decides which units to buy based on its client base. “We have one store in downtown Dallas, and another in the suburbs,” Flint says. “Hybrids like the Honda Insight might sell better downtown. It’s done on a case-by-case basis.”

“Wholetail,” a cross between wholesale and retail, is another method John Eagle uses to sell unwanted trade-ins. Before sending a car to auction, the dealership group might post it to a site like eBay. “We would get less than [the] retail [price], but more than wholesale,” Flint says. Despite the pricing advantage, the percentage of cars that John Eagle wholetails is relatively small. The dealership group’s trade desk handles the bulk of the trades.

Meanwhile, Arelco Inc. has moved away from wholetailing because the sour economy has spurred some customers to buy older, higher mileage vehicles.

Typically, Arelco stocks one-to-four-year-old cars. “Normally our clientele is looking for that,” saysDavid Pilcher, executive vice president of the Indianapolis-based dealership. “We get trade-ins that are six, seven or eight years old. In the past, we never put them on the retail lot.” But with consumers wary of potential layoffs, they have shied away from big-ticket purchases. “Because of the fundamentals of the market, a lot of folks out there are making shorter term decisions, buying $4,000 or $5,000 cars rather than $12,000 or $13,000 cars,” he says.

As such, Arelco puts those trade-ins on the front lot. “They are sold ‘as-is,’” he says. “They are not meant to be like [the] rest of our inventory. They might have smaller things wrong with them.” The bottom line is that Arelco is “making good money on those,” he says. “We don’t post on eBay anymore. And instead of getting wholetail, we’re getting retail.”

In the past year, Arelco has sold about 20 units per month that way.

Online Sales
Other pre-auction strategies dealers employ to get rid of unwanted trade-ins are called “upstream”and “midstream” remarketing. Both entail selling vehicles via online auction sites. Essentially, aged inventory is posted for sale online while it’s sitting on the dealership lot — i.e., “upstream” — or as it’s transported and awaiting physical auction — “midstream.”

“We may move the car from retail lot, but keep it posted online,” Pilcher says. “The physical auction might run only once a week. This way, we keep it online and still try to sell it.”

By selling cars upstream, dealers can save transportation and reconditioning costs, enabling them to reduce prices.

“We’re working hard to develop more upstream capabilities, to sell cars before they have to go to auction,” says David Stolt, senior director of remarketing for Hertz Corp. “We are working to build an Internet-based retail program, to sell cars to the retail community. A lot of effort is going into that area. If we develop channels further upstream, we can save transportation costs.” DollarThrifty Systems Inc., meanwhile, is working to bolster its direct sales force, to sell cars from its rental fleet to buy-here, pay-here dealers. “We put a direct sales group together five or six years ago,” says Randy Rawlinson, DollarThrifty’s director of remarketing. “We probably have 20 people in total in the marketplace, but we have ramped up a little bit.”

Good Looks Increase a Used Car’s Worth

by Laurie Giesen

Looks do matter. At least when it comes to a used car’s worth. Indeed, auction execs say the simple visual efforts – a good cleaning, reconditioning or new tires – can turn out to bring in the most bucks for a car on the auction block.

“The best thing you can do to a car to get top dollar is to clean it up,” says Tom Conaway, general manager at Value Auto Auction in Crooksville, Ohio. “You would not believe the condition of some cars that come in here, especially a lot of the bank repos, with trash thrown all over the place. Agood clean up, both inside and out, can go a long way in increasing the value of the car.”

Conaway explains that he has seen a $20 cleaning add as much as $800 to the value of a car sold at auction.

Other auction sales managers’ share Conaway’s view: Looks sell. However, sometimes it takes more than a simple wash — Detailing or even painting may be required.

Visual Appeal
“You need to spend a little money on the appearance to fix any cosmetic damages that might be there. Make sure all the fenders have been repainted if they are scratched,” says Doug Miller, vice president and COO of Central Pennsylvania Auto Auction in Lock Haven, Penn.

New tires can also be a good investment, as tire replacement can add up to $500 in value to a car if it has relatively low mileage, Miller says. “It depends on the car. If you have a car with over 100,000 miles on it and it also needs body repairs, I would not spend the money on new tires. But if the car is in good shape [otherwise], and has low mileage, tire replacement can add a lot of value,” Miller says.  An important tire consideration at auction is whether all four tires match, adds Conaway. “The letters on the tires have to match. It is better to have four Goodyear tires than one Goodyear, one Firestone, one Cooper and one of something else,” he says.

Additionally, Miller says value is added if the tires are the same brand as what the car had when it left the factory. “It’s always better if you can match the manufacturer’s specifications,” he says.

As for the wheels themselves, Conaway notes that “chrome or nice aluminum mag wheels always do better than standard hub caps.” Ed Kinsley, sales manager of Northeast Auto Auction in Kittery, Maine, adds that alloy wheels can add $150 to $250 in value to a car.

Although most auction managers say many bells and whistles add little value on the auction block, there are a few fancy features that can make a financial difference. Satellite radios, for one, will usually increase the value of a car, Miller notes. Meanwhile, automatic transmission is always valued over stick shift, adds Conaway.

Beyond automatic transmission and satellite radios, Kinsley says a leather interior can automatically raise the value, if it’s in good condition. “A leather interior is usually part of the premium package that can typically raise the value of the car anywhere from $300 to $400,” he says. But don’t put too much stock in a lot of high-tech gadgets. “Stereos, TVs, DVD players don’t add as much value as you think,” says Rueben Figueroa, sales manager of American Auto Auction in Dallas.

“Auction buyers are looking for a good deal and they will install the gadgets that they want themselves.”

And while some added features can increase value, missing ones can take away value as well. Miller notes that a number of cars are coming in with the CD disk for the navigation system missing. The lack of that little disk prevents the system from working and can reduce the value of the auto. A missing radio can also be a sign of a car not being cared for and can decrease the value more than the cost of the radio itself, Kinsley says.
And while the addition of high-end gadgets won’t always add value to a mid-range car, the lack of some features could harm the sale of a high-end car that is expected to have them.

“If a car is supposed to have a navigation system and it doesn’t have it, that might hurt the value of the car,” says Figueroa. But one of the biggest missing features that can ding value may be one of the smallest features? Missing keys. Figueroa says keys of high-end cars, such as Lexus and Mercedes, are expensive to replace and can really lower the value when such items are lost.