An independent used car dealer wanted to speak up and share his perspective on the state of the used car world. His comments to me were thought provoking, which is why I share them with you.
They also made me realize that I need to be clearer and distinguish between independent used car dealers, who are not affiliated with new car dealers, and those used car dealers who are. Also, recent news by CarMax that it is adding almost 55 stores through 2016, including 10 new locations this year, means it's going to be even tougher for the independent used car dealer to keep making a meaningful living.
Here are the words from the dealer, who I will only identify as being from the Mideast region of the country. His dealership has been around for more than two decades and seems to have an innovative approach to sales. I don't want to say too much more so I can protect his anonymity.
Here are his words:
Your assertions should take into consideration that it's the supply of "quality used cars that are scarce." you are correct in that there are used cars out there. But mostly high mile units are all that an independent has had to choose from the past two years. I read the runs lists of five auctions a week and then see the prospects on site. That equates to thousands per year.
The days of me going out, and within one day, replenishing inventory by finding 7-10 nice sharp low mile vehicles requiring little or no mechanical recon expense are over. At least until trades and lease returns increase on the new car side of things again. But isn't happening' because as you say, new car dealers are retailing those used cars that they normally would have sold at auction. The used car and car industry as a whole will become the mega dealer only world. Do we really want the big impersonal institution to be the only ones selling the nation its used cars?
[ Editor's note: I'm not going to call CarMax an impersonal institution but it is a legitimate concern that so much of the quality used car market is going to be cornered by dealers and companies like CarMax. ]
I am being squeezed out of an upper middle class living because there are fewer cars with reasonable margins to cover the cost doing business without turning into a snake. By the time they become frontline ready, I have incurred a ridiculous cost such as I never had to bear before the crash.
For us and most other independents who I know, supply IS low. The supply gives you a true reading on why used car prices are rising. Yes, it is supply and demand but it's hardly black and white. Within just 2 yrs, I was forced to travel to Pittsburgh (90 minutes) and to Columbus, Ohio (140 minutes) plus two local auctions 4(40 minutes ea.) and look for more reputable wholesalers in order to get perhaps three of the kinds of cars bringing sufficient margin to keep the lights on in the store. Everywhere I go the veteran dealers and the rest complain at how terrible wholesale supply has become.
What you don't see is that most of what is out there is undesirable to us and to the consumer, unless he/she doesn't mind a 140,000 mile unit or one that is more that 9 years old. I think the average American drives a 10 year old car, up two years in age than just two years ago. (Average age of used cars is 11.1 years.)
My average after purchase expenses per car have jumped from $200/ car in 2009 to $750 the past two years running. Now, instead of one day a week of shopping, I have made between two and four trips a week quite often. This is all while being hampered by tighter lending and a drastic dip in the middle-class credit rating.
For 22 years, my family has built a stellar reputation on integrity, standing behind our cars after the sale and being competitively priced. Now, I have to travel the region, in order to stay "frontline ready," and maintain our reputation. I actually need more man power but have fewer sales and lower gross profits per unit. Too many people have no money, no credit or both, including my good returning families. Hence you should see our A+ Better Business Bureau rating and particularly our cars.com reviews. We have a 5-Star 100% feedback rating and I believe we have the highest number of reviews in Cars.com's database within [removed to maintain his anonymity].
The rise of the buy-here-pay-here dealers are likely responsible for a great deal of your numbers of used cars sold. You said 2011 was a good year for used cars. I ask in what retail value bracket were those sales made compared to previous years?
Later in the piece [a blog post from December 2010], you stated that "It's to the advantage of the used car dealer, too, to foster this belief. Used cars are more profitable so they want you to think they are more expensive"
I contend that such a statement, along with the data presentation is not only inaccurate but harmful to the honest independent who actually cares about the customer's post purchase satisfaction and repeat business. The cars are getting less profitable for the reasons I have outlined. Not more profitable.
