I get emails from non-believers once in a while telling me how “the recession has totally killed the car business and how can I possibly have the balls to say that the used car business is recession proof…and even thriving?!”
Well, I have mentioned a few times before about how many of the old established NEW CAR dealerships have completely abandoned selling new cars and have switched over to selling used cars only.
Of course we all know new car sales are in the toilet because nobody is buying new cars and its just way too expensive for the dealerships to inventory new cars now.
But why would formally new car dealerships even bother wanting to sell used cars? I mean, why not just go completely belly-up and be done with the whole car selling business once and for all? You know, sell off your assets and buy an island in Fiji with perfect waves and sip drinks with little umbrellas in them (Hey, sounds pretty good to me!).
The reason they aren’t bailing is because the profits have always been with selling used cars.
Here are some headlines, with excerpts, I pulled from Google News today about this very phenomenon…
Loss of automobile franchise doesn’t always signal dead end
6/13/2009 6:35:02 AM
By Matthew Stolle
Post-Bulletin, Rochester MN
WEST CONCORD — For the past few weeks, when the phone rang at Boe Chrysler Center in West Concord, Signora Boe has at times experienced a strange reluctance to answer it.
Ever since Chrysler dropped Boe Chrysler as a dealership, the West Concord store has been inundated with calls from people looking to make a killing on a new car. The callers assume that Boe Chrysler is closing and unloading cars at fire-sale prices, and Signora, who runs the dealership with her husband, Peter, is quick to disabuse them of that impression.
Faced with the most challenging automotive market perhaps ever, southeastern Minnesota dealerships cut loose by Chrysler are reinventing themselves as either used car stores or expanding their business in used cars.
“We’ll just step that up a little bit more. We’ve been busy. The used market is very good right now,” said Paul Busch, of Paul Busch Auto in Wabasha, which also sells new vehicles built by Chevrolet, Pontiac and Buick.
Indeed, they see certain advantages in the used car business. The market in them is strong. They have an award-winning service department. And with fewer dollars tied up in expensive new vehicles, they hope to have more cars to showcase.
A spokesperson at Marchant Motors in Spring Valley also indicated that the dealership would be placing greater emphasis on used vehicles and servicing them…
And…
Dealership now selling only used cars
Oxford business one of 789 across the nation forced to stop selling new models.
By Ryan Gauthier
Staff Writer 5:20 PM Friday, June 12, 2009
For hundreds of Chrysler dealerships across the country, Tuesday, June 9, marked the end of the road.
But for University Chrysler Jeep Dodge, the termination of their franchise rights looks to be nothing more than a slight detour.
This week University Chrysler Jeep Dodge was forced to stop selling new Chrysler models along with 789 auto dealerships across the U.S. targeted for closure. Unlike many of its peers, however, the Oxford location will remain open as a used car dealer and service provider.
General Manager Greg Kenwell said he hopes to make up for the lost income on new car sales by stocking more used vehicles.
“We’re going to increase the number of pre-owned vehicles we have here for sale,” Kenwell said.
Kenwell said he has been selling pre-owned vehicles at a 5:1 ratio to new vehicles, which he admitted is atypical for the average dealership.
New cars out, ?used cars in
The new owners hoped to expand upon the dealership’s pre-owned sales, as Kyger said the new owner saw Oxford as a better market for used cars.
“As a used car center you have the ability to adapt your product lineup to match what the current market demand is,” he said. “You can mold your inventory to whatever is hot at any given time.”
And…
Dealing with hard times: Local auto sellers see sales fall but hope for rebound
By Danny Udero Sun-News Sports Editor
Posted: 06/14/2009 01:00:00 AM MDT
SILVER CITY – Rico has seen a trend of used cars being sold a lot more. He added that for every new car he sold, three used cars would fly off his lot.
With this situation, Rollie Saavedra, of Rollie’s Auto, has had to sit back and rethink his game plan for used vehicles in his lot.
“I had to answer the question of what my customers wanted to buy,” he said. “Do they want a vehicle with some warranty left and low miles but costs around $15,000, or do my customers want high miles and vehicles that run around $10,000?”
Taylor said he has seen used cars go up in value for the first five months of this year, and just recently saw the used car market remain steady.
“I think with the bankruptcy of the new car dealerships around the U.S. the used car market has gotten to be pretty high,”
Taylor has seen a trend reflecting the price of gas during the past year. When gas was almost $5 per gallon, trucks and sport utility vehicles weren’t moving off the lot. He said that he sold some at huge losses during that time. But, with the price of gas coming down, trucks and SUVs are selling better.
And its global too…
GM to expand used car business over five-fold
Press Trust of India / Jaipur June 14, 2009, 15:49 IST
At a time when General Motors India is facing difficulties in raising funds to complete its engine plant, the company will expand its used-car business by over five-fold across the country this year.
The wholly-owned subsidiary of the bankrupt US car giant General Motors will increase its outlets of pre-owned cars to 50 by year-end from the existing 11.
Until later…
Steve
Steve,where will the supply come to replace our used car inventory,if a 5 to 1 ratio of every car sold is used.Here in North Carolina the prices are rising and quality is diminishing.I have been in business since 1975, when a new Cadillac Deville was $6500,and New Car Stores were at least 50 miles apart,or depending on population of an area,and they made money and i got plenty of inventory from the new dealers,and i made money.Looks to me like the used car prices will get much closer to the price of a new one,eventually,as supply and demand equal out at sometime in the future.What is your thoughts or the insights of other dealers you may have contacted.Thanks Steve Best
Hi Steve,
Where will a consistent supply of used cars come from with the ratio of used cars to new car sales being so high now? Same place it has always come from when consumers start buying new cars again. Things will go back to “normal” when the economy gets better. Not too sure about that idiotic Cash For Clunkers program that is looming, but that should boost new car sales…IF the financing loosens up at the same time. I realize 5 to 1 sounds impressive, and it is, but the article stated that the ratio at that particular dealership was an anomaly. No doubt there has always been a much higher ratio of used car sales over new car sales. Stay tuned because maybe I’ll do a blog post about that soon.
As weird as things are now, we can be thankful that the used car business is recession proof, right? :-)
Steve
Hey Steve, My sales haven’t changed. Great article! Thanks.
Hey way to go Ryan!
Steve
Steve,
There are many factors involved with selling Used autos instead of new. I would guess you hear the news with all that is going on with some manufacturers. The remodeling of the business models is a huge shift. The old business model for new autos will no longer prevail, those old business models have hit the wall so to say. Some dealers might be seeing better opportunities with the used autos for factors like it might be that it takes less energy to run a business with used autos than it would be to try and hold onto the franchise type auto program. With a regular service schedule on a used auto, that used auto could operate as a reliable unit into two hundred, three hundred thousand miles or more at a cost to operate that is possibly less than the expense of a new auto. How many fine folks do you know of that can afford to purchase a new auto on current household budgets? I would say less than ever before on a percentage basis. Steve there are other factors that affect all of this, but basically the new car horse trader will have a place in the market, just not as it was previously conducted. Besides that steve, the new auto traders “dealers” need to sell new auto units so the service, parts and mechanics have something to earn a living from, like on a new auto unit, the dealer might put an extra set of sport floor mats on the offer/sticker and that credit usually goes to the parts department folks, so they get a sale of a part “the floor mats”. Steve here is another possible scene with the used auto business models, Steve say all you do is sell and trade for used automobiles, it is possible that the requirements for operating a used automobile company could, depending on your location, be such that the legal structure of the used automobile company, might be a lot different than the legal structure of the new automobile franchise.
Rico
Port of Iowa
Steve,
Most of my profits come from used vehicles (surfboards) as well–The surfboard industry has a lot of similar trends to the auto industry. I have to agree with Rico’s statement “There are many factors involved with selling Used autos instead of new”. Like the recycle factor; I hate to see good used stuff go to waste. Here in P-land supply and demand is a major factor. There isn’t a large inventory of new vehicles here and the number of cheep ass surfers who seem to only have enough money for beer and wax tend to buy up my reconditioned clunkers. As soon as I sell some more clunkers, I am running over to Hot Lava to pick up my NEW 5-8 parabolic round nose fish quad, 7-4 pintail,9-0HP longboard,and 12-0SUP.
See you in the lineup someday soon Steve, and maybe even your old clunkers will get recycled here in P-land where my business depends on used vehicles.
Brent
Pavones, Costa Rica
Hey Brent ol buddy! Good to hear from you. Been too busy so I haven’t been on FB in several weeks.
I didn’t know you were into buying and selling cars for profit down there! How come you didn’t tell me that before?
Anyway, is your new parabolic board going to have a parabolic outline (like a snowboard) or is that other “parabolic” thing I see where I have no idea why they are calling them parabolic? I guess its something to do with the stringer. Lemme know dude.
Steve
P.S. Yes I will join you in the lineup for some perfect warm uncrowded tubes soon. It IS the thing that keeps me going. Seriously.
I love keeping up to date on everything original so I’ll definitely be bookmarking this site.
Cool blog post. Offered me a a lot better understanding of the current new and used car market.
I will be buying my first car soon. Any idea on cheaper and affordable cars?
See my article here: http://www.buy-and-sell-cars-for-profit.com/blog/what-cars-should-i-sell-when-gas-prices-are-high/
Steve
So true! Having worked at a new car dealership for many years, I can vouch for the fact that the bigger profits are made sooner from selling used cars. We did make money from all the upsells and service on new cars though, but it wasn’t the quick profit we made from selling used cars. Thanks.
Hey thanks for this excellent article.