Higher-mileage used cars could be solid business as purse strings tighten
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August 16, 2020 07:00 PM

Higher-mileage used cars could be solid business as purse strings tighten

Richard Truett
Reporter covering technology, engineering and Jaguar Land Rover for Automotive News
Fixed Ops Journal
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    Used vehicles can be more attractive to customers who are being conservative with finances during the COVID-19 pandemic.

    Like many Americans, my wife and I are very worried about the immediate future. We are being extremely conservative financially until we have a better understanding of how the pandemic is going to affect us. We know we are not immune to pay cuts, furloughs or worse.

    When the lease on our 2017 Chevrolet Volt expired in July, we did not replace it. In normal times, we would have leased another vehicle. Instead, the plan is to just pay cash for a good, clean, older used car that hasn't been to the moon and back in terms of mileage. We are, apparently, not alone in adopting this strategy.

    Clean used cars — even from interred brands such as Saab, Pontiac, Suzuki, Isuzu and Mercury — are a hot commodity these days. You can hit eBay Motors and find 15-year-old snow-belt-driven vehicles from these and other brands that have 150,000 miles on the clock with asking prices between $3,000 and $5,000. Even the good ol' "beater with a heater" is commanding what I would call serious cash these days.

    Opportunity amid uncertainty

    IHS Markit last month released a study on the average age of America's cars. One in 4 vehicles you pass on the road is, on average, 16 years old or older, and the average age of all vehicles is now at a record-high 11.9 years. IHS says this is because of slower sales during the pandemic, higher new-car prices (the average price of a new car in June was $38,530, according to Kelley Blue Book, up $1,141 from a year earlier) and the fact that vehicles last longer.

    These older cars, I believe, present a profit opportunity for fixed ops directors at a time when business in the service lane can be unpredictable because some customers are delaying repairs and maintenance work. I think a solid business could be built by dealerships offering high-mileage cars around 10 to 15 years old that have been certified by factory-trained technicians and come with a 90-day warranty.

    This would be more than just replacing tires, brake pads and other regular-wear items, giving the car a good detailing and putting a price tag on the windshield. I'm not suggesting the full reconditioning that is done with off-lease cars. Minor cosmetic defects and wear-and-tear of trim items are expected on older used cars.

    Instead, techs would do a compression check to ensure each cylinder is within factory specs. They would pressurize the cooling system to check for leaks. They would ensure the oil pressure is within factory specs. These tests establish that the engine is in good condition.

    The transmission can also be checked to demonstrate that it is shifting properly and that its internal components are in good condition. The alternator, starter and ignition systems can be checked. Techs also would inspect the metal brake and fuel lines, which often rust when cars get older, and other critical safety components.

    Trust in the dealer

    For me, there's a certain trust that comes with buying a used car from a franchised new-car dealer. I feel I'm not going to get an unsafe car. And it's worth paying a small premium to know that the vehicle has been inspected and that technicians examined the critical items. Most techs, I believe, would not let a used vehicle go out for sale if they wouldn't put their own family in it.

    Older secondhand vehicles may be too old for banks to finance, but a growing number of Americans are socking away cash during the pandemic. This spring, the U.S. Bureau of Economic Analysis said Americans' personal savings rate reached 33 percent in April, the highest the agency has ever recorded.

    We have cash on hand, and we plan to spend it when we find the right used vehicle. I've gotten over the psychological hurdle that I am likely going to buy something with more than 100,000 miles on the odometer. But I am OK with that as long as the vehicle has passed through the service department at a new-car dealership.

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