On Sept. 15, 2008, Ford dealer Marc Cross was preparing to tour the New York Stock Exchange when he heard that Lehman Bros. had collapsed.
"We were literally sitting there on Wall Street outside the stock exchange waiting and seeing all this hullabaloo," recalls Cross, owner of Jordan Ford in San Antonio. "They told us that Lehman had collapsed. It was kind of surreal."
Cross' group of dealers immediately feared for the auto industry: "A lot of things run through your head. Is this another 1929?"
It was easy to see that a spreading economic panic would spook car shoppers, dry up credit and send new-car sales into a swoon. But the new-car sales collapse would have a domino effect, and the hangover is being felt acutely now by car dealers:
-- When new-car sales plunge, profits from warranty service and routine maintenance do, too.
-- When drivers keep cars longer rather than trading them in -- and when a new-car sales slump decimates the pool of potential trade-ins -- dealers must pay top dollar for used-car inventory, and the shortage hammers vital used-vehicle profits.
In a dozen ways, aftershocks from the new-car sales debacle are reshaping the used-car business.
Dealers are keeping older vehicles on their lots now, rather than sending them to auctions. They're spending more time and effort to find the right used cars to sell. And they will have to work even harder to protect a key source of profits.
This snowball effect is just going to get worse as first 24-month cars, then 30-month cars, then 36-month, then 40-month cars don't come back as trades-ins -- because they were never built and bought in the first place.
Asbury Automotive COO Michael Kearney says most buyers trade in vehicles at about 40 months. So the shortage of used vehicles will worsen as the post-Lehman sales crash ages, he says. "A year from now, or perhaps two years from now, this will be a much more important question than it is today," Kearney says.
Some segments give a preview of the future. After gasoline prices rose in the spring of 2008, truck sales plummeted, and manufacturers cut back on light-truck production. Two-year-old pickups and SUVs are in short supply.
Similarly, rental car companies -- usually a steady source of lightly used cars -- began postponing new-car buys in 2009. Although sales have revived in recent months, Ford spokesman Steve Kinkade says rental companies still are turning the fleet over less frequently than in past years.
"Typically, rental fleets hold on to vehicles for six months and then put them into auction," Kinkade says. "But with the bad economy, they're holding on to them longer."