Instead of sending that 1997 Ford Aspire trade-in to auction, large dealership groups are seeking to retail such older cars for more profit.
AutoNation, Lithia, Asbury, Sonic and Penske are among retailers trying to boost sales of old used vehicles. Some, such as AutoNation and Lithia, are even carving out separate space on their lots. Demand from customers who want basic transportation in a weak economy is driving retailers' interest.
"When we wholesale vehicles at auction, obviously we're not creating that retail customer," AutoNation COO Michael Maroone told Automotive News. "And we're looking to broaden our customer base."
Retailing the cars typically delivers higher profit margins than wholesaling, which can be a money-losing proposition. Older used vehicles also can generate incremental finance income on the sale and potential new service business.
As used-car sales have increased, finding adequate inventory also has been a problem. That is driving retailers to keep some older vehicles that they otherwise would have wholesaled.
AutoNation will expand its no-haggle Value Vehicle Outlets specializing in low-priced cars. The nation's largest retailer opened 16 this year and will add another six by March. The outlets are part of existing locations, but the vehicles are segregated and carry different signs.
Vehicles sold at the outlets during the third quarter had an average price of $7,800. AutoNation reconditions the outlet vehicles and sells them with a three-day money-back guarantee and a one-year roadside assistance package.
Maroone said he expects incremental sales of 50 to 60 vehicles from each outlet per month. Margins as a percent of revenue are higher than typical used vehicles, he said, though the dollar profit is slightly less.
About 18 months ago, Lithia started Value Auto lots at all its dealerships. The lots carry reconditioned vehicles mostly seven years or older with more than 80,000 miles.
"There are instances we have sold cars for under $1,000 -- if the car runs," Lithia President Bryan DeBoer said. "We'll sell it if it stops, steers and goes."
The average price is $7,000 to $8,000. Vehicles carry a two-month/3,000-mile warranty. Lithia spends $300 to $400 to recondition them, about half of what is spent on mainstream used cars. Lithia sells about 10 extra vehicles per store every month with the program.
Sonic typically doesn't segregate old cars, but units priced under $10,000 represent 30 percent of used-vehicle sales, said Jeff Dyke, Sonic executive vice president.
"We have it all," he said. "We don't wave a flag about the value cars."