Used-car sales prove to be boon and bother

Cutting the glut
Here's how dealers and manufacturers are coping with the glut of used vehicles.

  • Manufacturers are declining to sell vehicles at auction that don't bring a minimum price.
  • Dealers are buying fewer used vehicles at auctions.
  • Dealers are stockpiling used vehicles with hopes that prices will rebound.

  • Used-vehicle sales at Thoroughbred Ford in Kansas City, Mo., dropped dramatically when Ford Motor Co. offered 0 percent financing in September.

    Thoroughbred Vice President Roger Portersaid he retailed 130 used vehicles in September, 50 fewer than his 180-unit monthly average.

    But in October, things began to improve. Many customers seeking free new-car loans bought a used vehicle instead. He retailed 195 used vehicles in October.

    Porter even took some 2001 models as trade-ins on new vehicles of the same model year from people who wanted to get the 0 percent financing.

    But the used-vehicle market remains unsettled. While some franchised dealers say 0 percent new-car financing has created a positive impact on their used-vehicle sales, others are having problems.

    Because of the large numbers of vehicles taken as trade-ins on new vehicles, some dealers and manufacturers have too many used vehicles, and wholesale used-vehicle prices are suffering.

    That added to an already ample supply of wholesale off-lease vehicles and program cars that entered the market after rental-car companies began selling chunks of their fleets shortly after the terrorist attacks.

    And soon there will be a seasonal slowdown in used-vehicle sales brought on by the holidays and cold weather.

    Sliding prices

    Tom Webb, chief economist at Manheim Auctions Inc. in Atlanta and author of the monthly Manheim Used Vehicle Value Index, said used-vehicle wholesale prices declined 4.6 percent from October 2000 to October 2001, and prices dropped 1.7 percent from September 2001 to October 2001. That is because rebates on new models generally deflate the values of late-model used vehicles of the same make.

    The no-interest loans can amount to at least a $2,000 incentive for consumers.

    Tom Kontos, a vice president and industry analyst at ADESA Corp., in Indianapolis, said dealers are considering this when they bid on vehicles at auctions.

    "The dealers are doing the calculations in the auction lanes by the seat of their pants, but quite accurately," said Kontos, who writes "Pulse," a quarterly economic review of the remarketing industry.

    No price, no sell

    To shore up prices, some automakers, including General Motors and the Chrysler group, engaged in more "no-selling" - that is declining to sell a vehicle at auction when it does not attract the seller's minimum price.

    Kontos said auctions were struggling to sell 50 percent of the vehicles offered in early October.

    "We're now at over 50 percent, and we've gone up a couple of percent over the last week or two," he said last week.

    But even auto companies that have not engaged in the 0 percent craze are feeling the pain, making the unusual and uncertain environment even more of a reality.

    American Honda Finance did not offer 0 percent financing and does not participate in rental car buyback programs, yet it is affected by depressed wholesale prices, says Dave Langley, national manager of vehicle remarketing. He said American Honda Finance is selling only 70 percent to 75 percent of the vehicles it offers at auction instead of the usual 90 percent to 95 percent.

    "We are selling at our lowest percent ever," he said.

    Hoping for an increase

    At auction, dealers are usually buying vehicles for which they have an immediate need and stockpiling used vehicles they have taken in trade and would have sold at auction, hoping that prices will soon rebound.

    Bill Napleton, who owns Napleton Cadillac in Park Ridge, Ill., and Napleton Lincoln Mercury in Skokie, Ill., said his used-vehicle inventory is about 20 percent larger than normal, mostly because of the trade-ins he took from customers eager to take advantage of 0 percent financing.

    His problem is with the used vehicles he had in inventory before Oct. 1. Those vehicles, he said, are now worth 15 percent to 20 percent less than they were before the widespread offering of 0 percent financing.

    Because he paid less for vehicles he acquired after Oct. 1, he is able to sell them for less without taking a financial hit. He said he will hold on to the older vehicles at least until Dec. 1, hoping for a price increase.

    "If you had $1 million in (used-vehicle) inventory, it's now is worth $800,000,'' said Napleton, who also handles Mercedes-Benz, Porsche, Audi, Mazda and Subaru brands. "Like tomatoes, you can't keep them forever."

    Brett Hoselton, an analyst with McDonald Investments Inc., in Cleveland, Ohio, agrees. He said it costs roughly $75 a month to store a vehicle, not counting its depreciation.

    Not much optimism

    Chris Graue, general manager at Graue Inc. (Chevrolet-Buick-Oldsmobile-Pontiac-Cadillac), in Lincoln, Ill., said his October new-vehicle sales were up 15 percent and his used-vehicle retail sales held steady, but he sold only two of the 12 vehicles that he took to auction two weeks ago.

    Graue fears that November and December, traditionally slow sales months anyway, will be even slower once 0 percent financing is scheduled to end, beginning the week of Nov. 18. He expects his used-vehicle retail sales to decline 30 percent through year end.

    He plans to hold on to many of the vehicles destined for auctions for another 60 to 90 days in hopes that prices will rebound.

    Says Graue: "There are more sellers (at auction) than buyers."

    You can reach Arlena Sawyers at

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