Faced with a tight supply, dealers go beyond auctions and trade-ins
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Wanted: New ways to acquire used cars

Faced with a tight supply, dealers go beyond auctions and trade-ins

Jamie Darvish, vice president of DARCARS Automotive Group, leads a weekly meeting at which DARCARS executives review used-vehicle inventory and discuss how to get more used cars for the group's 21 dealerships.
More used cars?
Here's the outlook for supplies of used vehicles in 2014.
Units up to 5 years old: 8% more than in 2013
Units 6 to 8 years old: 11% fewer
Total: Still 12% below 2009 levels
Source: NADA Used Car Guide
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Dealer Vince Sheehy resolves to get more used cars on his lots this year.

To do so, Sheehy hired a person for a new position dedicated to devising creative ways to procure more used cars.

You can only take so many trade-ins, "and a certain number of those trades don't make it to the lot," says Sheehy, president of Sheehy Auto Stores in Fairfax, Va. "The only way to grow that business is to buy used cars on the outside."

Used vehicles were in extremely short supply during and in the years immediately after the recession, and after the federal Cash for Clunkers program. That forced dealers to come up with creative ways to procure used vehicles that went well beyond auctions and trade-ins.

In 2014, the supply of used vehicles, especially late-model ones, will increase. But Sheehy and other dealers say they will continue to be creative and aggressive in procuring used cars. After all, the supply still will be well short of peak levels. And down the road, Sonic Automotive Inc. plans a chain of used-only stores, akin to the CarMax Inc. model, which will siphon used cars from the market. So the old tried-and-true ways of procuring used-vehicle inventory won't be enough.

Tight supplies


"The growth in late-model volume will allow dealers to be more selective, but just a bit more," says Larry Dixon, NADA Used Car Guide analyst. "That's because despite the rise in volume, late-model supply in 2014 will still be comparatively tight."

The supply of late-model used cars in 2014 will be about 12 percent lower than in 2009 and 4 percent lower than in 2010, Dixon says. Because dealers remain highly focused on used-car operations, Dixon says the competition for used units will remain "fierce."

To find more used vehicles during the recession, dealers became more aggressive in approaching customers in the service lane to see if they were interested in selling their cars. They also made the switch from scanning newspaper used-vehicle classifieds to scouring eBay Inc. and Craigslist. Such actions used to be hit-or-miss. But dealers increasingly have formalized their used-vehicle search and are working with outside concerns to find the cars and trucks they want.

BMW Financial


For example, BMW Group Financial Services worked with BMW dealers to help them fill the used-vehicle inventory gap created by the pullback on leasing during the recession. BMW Financial combed through its car loans and leases to find customers who were up to date on their payments and whose vehicles were worth more than the amount of the loan outstanding, and passed along the info to the dealers who made the initial sale or lease.

Those dealers then contacted the customers, offering to get each one into a new BMW at a monthly payment close to customer's existing payment.

A customer who had equity in the car after making 31 monthly payments, for example, might be persuaded to buy a new car rather than keep the current one through the full term of the 36-month loan.

In addition to selling a new vehicle and cultivating loyalty among its customers, a major goal was to help BMW dealers snag late-model inventory for their certified used-vehicle programs.

Each Thursday at 11 a.m., a team of executives at DARCARS Automotive Group meets for two to six hours to review the group's used-car inventory and discuss how to procure used cars for all 21 dealerships in the group, says John Kennedy, corporate director of pre-owned vehicle operations for DARCARS in Silver Spring, Md.

DARCARS retails about 12,400 used cars and wholesales 8,800 used cars each year. The meetings began about a year ago as a way to build used-car inventory, Kennedy says.

Earlier, if a DARCARS' Ford store took in a Toyota Camry in trade, the car likely would have been auctioned, he says. Now the committee will find another DARCARS store that might be able to retail it and send it there.

In the past year, DARCARS has doubled its spending to recondition many used vehicles that it formerly would have wholesaled, says Tammy Darvish, vice president of DARCARS. As a result, used-car retail sales rose an estimated 21 percent in 2013, she says, citing preliminary figures. Profitability is "way up," she says.

In addition, about 18 months ago, DARCARS struck a deal with some national rental car companies to sell new cars to those rental companies, with the provision that Darcars gets the first shot at buying those cars when they are retired from the rental fleets, Darvish says. She declined to name the rental companies.

Good grosses


"We're purchasing them back at a figure that everybody's happy with. We're able to quickly put them in the shop," Darvish says. "Our grosses are good on them and our turn rate is very good on them."

DARCARS Automotive Group ranks No. 24 on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 19,633 new units in 2012. But it ranks No. 38 in the Automotive News ranking of the top 100 dealership groups in terms of used-vehicle sales, with retail sales of 10,722 units in 2012.

Penske Automotive Group Inc. also has worked with rental fleets, but through a strategic investment. It is the exclusive operator of some Hertz rental locations in Memphis, Tenn., and parts of Indiana, including airport locations in Fort Wayne, Indianapolis and South Bend.

AutoNation Inc., the nation's largest auto retailer, has two programs that enable it to buy trade-ins from people who buy vehicles from other companies.

In a test program, AutoNation Inc. helps Avis Budget Group sell retired rental vehicles directly to consumers in nine states and buys those consumers' trade-ins for its own inventory. It also appraises and buys trade-ins from people who buy Tesla Motors Inc.'s electric cars.

Though the programs are small -- about 50 trade-ins a month from Avis Budget and 225 in the third quarter of 2013 from Tesla -- they are learning laboratories for AutoNation, says COO Mike Maroone. The programs likely will grow, he says.

"It's like the other ways we buy cars online," he told Automotive News. "We're really trying to perfect our ability to acquire more used cars outside of the store."

Ricky Beggs, managing editor of Black Book, says dealers over the last four or five years who have not found alternatives to acquiring used vehicles outside of the auction channel "have missed the boat, for sure."

"Any time you don't have competitive bidding head-to-head with somebody in an open marketplace, you should be able to acquire that vehicle at a little lesser amount," he adds.

Sheehy started building ties with rental car companies about two years ago. About 20 percent of the 10,000 used cars the group sells annually now come from rental companies. He also offers staffers a $100 spiff if they find a used car "off the street."

Sheehy ranks No. 37 on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 16,793 new units in 2012. But it ranks No. 43 in the Automotive News ranking of the top 100 dealership groups in terms of used-vehicle sales, with retail sales of 10,259 units in 2012.

As the tight supply of used cars eases, procurement remains a priority for all dealers, says Sheehy. He hopes his new hire will have a plan in place in the next few weeks to keep Sheehy's used-car business booming at his 19 stores.

"It's very early in the process," Sheehy says. "We'll see what creative ideas we come up with."

You can reach Arlena Sawyers at asawyers@crain.com.


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