The used-car superstores are moving downscale. When they took the automotive retail world by storm several years ago, the superstores featured acres of vehicles that were all but brand-new. Now their fleets are getting longer in the tooth.
The change from 1- and 2-year-old vehicles to older cars means the superstores are shifting away from being an alternative to the new-car departments at franchised dealerships.
The chains will be wooing people with a less sterling credit rating. The cars they sell will be less like commodities and more like traditional used cars - each vehicle is different from the next.
At the National Independent Automobile Dealers Association meeting this month in Las Vegas, Lamar Cook, president of the association and a Summerville, S.C., used-car dealer, warned fellow used-car dealers the superstores are encroaching on their turf.
'It appeared for awhile the superstores wanted to stay in 1- and 2-year-old cars,' he said. 'Unfortunately for us, they're being educated in older cars. We had better sharpen our skills, because they are coming.'
All three major national chains are experimenting with older vehicles:
AutoNation USA is mixing vehicles from its low-price brand, Valu Stop, into its regular inventory at several stores and is aiming at a $10,000 average price.
Driver's Mart Worldwide has launched a line of older vehicles called Budget Boulevard.
And CarMax has been selling 6-year-old vehicles for some time. Since its inception, CarMax has been selling vehicles six years old and older under another brand - ValuMax.
The move to not-quite-so-new vehicles is part of a retrenchment of the superstores, which are meeting some cold, hard realities as the used-car market softens.
None of the chains has been profitable, though AutoNation USA, CarMax and Driver's Mart stores are turning profits as they mature. Real estate and building costs are not factored in, however. AutoNation USA and CarMax are owned by publicly traded companies, and investors have been applying pressure on management to turn profits, the kind of profits older vehicles can bring.
'The only reason they're selling older cars is they ran into two particularly gruesome problems,' said Art Spinella, general manager of CNW Marketing/Research in Bandon, Ore. First, the supply of low mileage, off-lease vehicles was insufficient for both franchised dealers and the superstores; second, the superstores underestimated the ability of those dealers to compete and snap up the prime used merchandise.
'Because of where they are on the food chain, superstores wind up having no choice but to sell older vehicles,' Spinella said.
Vehicles in the fleets of AutoNation USA, Driver's Mart and CarMax have grown from an average of 4 years old a year ago to 41/2 years old today, said Spinella. Prices at the three chains have dropped an average of $600 during the last year, he said.
'I think they're changing the mix to make the cars less comparable so they can haul a bigger gross,' said George Hoffer, a professor at Virginia Commonwealth University in Richmond, Va. 'Older cars are much more difficult to compare.'
Of the three, AutoNation USA, once the central automotive retail enterprise of Re-public Industries Inc., has been most aggressive.
Republic went on a buying spree in 1997, and has either closed on or announced an intent to acquire 55 dealer groups with 282 franchises. Re-public has become the largest new-car dealer group in the country (see Top 100 Dealer Groups list starting on Page 28). The AutoNation USA megastores have gone from being the star of the show to being a bit player in Republic's automotive retail strategy.
Republic is not going to open more Valu Stop stores until it evaluates the success of mixing cars of various vintages at AutoNation USA stores, said Mike Maroone, president of the automotive retail division of Republic Industries. AutoNation USA created Valu Stop as a smaller outlet for older used cars. There are now four Valu Stop stores.
Maroone said AutoNation USA is trying to buy smarter.
'We're trading for cars rather than bidding for them,' he said. In contrast to Auto-Nation USA's early strategy, 'we're not buying anybody else's off-lease portfolios.'
Unlike Auto-Nation USA, Car-Max always has sold ValuMax budget vehicles at its superstores.
Virginia Com-monwealth's Hof-fer did an informal survey of CarMax vehicles advertised in the Richmond Times-Dispatch. Six months ago, 80 percent of all non ValuMax cars had manufacturer warranties. In March, Hoffer found only 60 percent under warranty, meaning CarMax is selling more older vehicles.
'I believe that basically over the last six to eight months, they're becoming much more like a traditional used-car and new-car dealer,' said Hoffer about CarMax. 'They're going after service, putting on processing fees, trying to make their cars less commodity-like.'
W. Austin Ligon, CarMax president, said the largest share of vehicles in CarMax stores are thos e purchased directly from its customers.
Thomas Eggleston, president of Grand Rapids, Mich.-based Driver's Mart Worldwide, said the 12-store chain has reduced the number of 1- and 2-year-old vehicles in its inventories and shifted to 3- to 5-year-old vehicles.
Its Budget Boulevard line consists of 6- and 7-year-old vehicles with fewer than 100,000 miles. Budget Boulevard vehicles will make up 15 percent of Driver's Mart's inventory, he said.
'Part of the creation of Budget Boulevard reflects the continuing strong purchase of private party vehicles in response to our free appraisal and cash purchase whether they buy a vehicle from us or not,' said Eggleston.
Superstores have marketed themselves as an alternative to a shopping experience customers hated at traditional dealerships.
Surveys showed customers liked the way they were treated at the superstores, but found prices to be high. Like everyone else, the superstores sold plenty of used cars, because the used-car market was sailing along at a record clip that lasted until mid-1996.
Then market conditions changed. Manufacturers offered incentives on new models almost at introduction. The incentives made nearly new vehicles at superstores seem even more expensive. These incentives also helped bring used-car prices back to reality after record highs.
New-car dealerships began battling back by more aggressively snapping up vehicles they had first crack at anyway - off-lease vehicles and owner trade-ins.
CNW's Spinella says the superstores misjudged many things, including the availability of nearly new cars.
'It was an enormous miscal- culation based on an enormous amount of misinformation that got the superstores involved in the first place,' he said. 'They were saying they would bring a national brand to the used-car business. But what's Chevrolet? It's a national brand, and a hell of a lot stronger brand than AutoNation.'
But the superstores, once scorned by many in the industry, are getting some grudging respect.
'Superstores have raised the credibility of used vehicles,' Frank Stephens, vehicle remarketing manager for Chrysler Corp., told a National Independent Automobile Dealers Association panel in Las Vegas.
'We're getting a lift in pricing. They've brought a new slant. and it has helped the entire industry.'