As hot used-car market slows, watchword is caution

CHICAGO — The market conditions in which used cars and trucks appreciated in price and sold like hotcakes last year look to be slowly dissipating.

As general inflation and higher interest rates continue to take a toll on consumer confidence, vehicle buyers are now more selective than they were one year ago. For dealers who have invested money and time ramping up used-vehicle acquisitions and sales strategies, a change in demand dynamics is cause for caution.

That's the insight and advice of two dealership group leaders and an industry executive who spoke during a panel discussion Thursday on used vehicles at the Automotive News Retail Forum in Chicago.

There is no market more efficient than the used-car market, said Tom Moore, COO of Tampa, Fla.-based Morgan Automotive Group. But it was "a hell of a lot more fun" managing a larger level of investment into used vehicles when those cars were appreciating in value, he said.

In the last two years, many dealers found success zeroing in on acquiring and selling more used cars as fewer new vehicles were produced because of supply shortages, panelists said. Some dealers bolstered their involvement in inventory channels they hadn't explored in depth before — buying vehicles directly from consumers, for example. Another channel — securing inventory by way of trade-ins — was more familiar but still crucial.

Wholesale auctions are still important to Scott Kunes, COO of Delavan, Wis.-based Kunes Automotive Group. But it's smart of dealers to realize they have a wider variety of channels from which to obtain vehicles, he said.

"If I go to the auction and I buy 10 cars, one of them is going to be a bad buy," Kunes said.

Dealers need to make sure they limit that, Kunes said. One way to do so is by making sure dealership employees in charge of obtaining used vehicles via appraisals, trade-ins or through auctions are properly trained and have all the tools necessary to make the best selections possible, Kunes said.

Franchised dealerships' competitors are doing a great job of scooping up vehicles via appraisals, said Brian Kramer, executive vice president of Cars.com and general manager of its Accu-Trade business, which provides vehicle appraisal and valuation data and logistics technology. For instance, much of used-car giant CarMax Inc.'s sales success is rooted in their digital acquisition strategy, he said. It's a growing space dealers could venture into if they enable their employees to appraise vehicles more quickly, he said.

Future outlook
In the last couple of years, high new-vehicle prices have dictated used-vehicle prices, and as the latter have risen, consumer sentiment has worsened, Kunes said.

Would-be buyers are now increasingly thinking about affordability, leading to higher-mileage vehicles being purchased, Kunes said.

In the past six months, Kunes Auto Group has trimmed its used-car inventory at its 30 stores to 2,000 vehicles from about 4,000. The goal is to be more vigilant, Kunes said.

While dealers have had their best two years ever, Kunes said, they have also picked up business habits that now need to be broken as market dynamics continue to change.

"We're returning our inventory and staying ahead of that depreciation," Kunes said.