It's no secret that the profit on a used car can be several orders of magnitude greater than the now-minuscule markup on a new car. It's also not unknown that an super-abundance of dealers and a deadly dearth of customers have left hundreds of Ford and Buick-Pontiac-GMC dealers in the soup, struggling to sell enough new cars to stay in business. Ward's Dealer Business reports a new trend: dealers who let their new car franchise lapse and carry on selling used vehicles. Unable to carry a 56 new car inventory, The Davis Auto Mart near Lansing, Michigan handed-in their Buick-Pontiac-GMC. San Diego's Bob Baker Auto Group ditched their Ford franchise this month. The movement will benefit The Big 2.8, who desperately need to trim their bloated dealer network. Meanwhile, it appears that there's plenty of life after dis-enfranchisement. The owner of Performance Auto Mall in Syracuse says the chief advantage of a new car franchise– access to good quality used cars– is history. "Years ago, with new-car shingles, we could go to factory auctions and buy good cars of all brands below market,” Ron Boukair told Ward's. "I now can buy a Chevy Impala for $1,000 less on the Internet than I could get at a closed factory auction."
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The other profitable sector of a car dealership is the service department. I wonder if these used car only shops are keeping their service business thriving by building a reputation for top notch service at reasonable prices or if they are simply shutting down that end of the operation.
I’d encourage the Big 3 to develop a second tier of dealers for marginal dealerships. Essentially, the second tier would still get access to auctions and genuine parts, as well as advertising support for their CPO programs.
Developing this second tier would allow the Big 3 to prune their dealership ranks by moving out the smaller dealers, allowing these dealers to keep the high margin repair/maintenance services without the expense of maintaining new car inventory.
Without new cars these dealers are nothing more than yet another used-car huckster. There may be no money in new cars, but there is a perceived credibility to the customer, deserved or not.
There may be no money in new cars, but there is a perceived credibility to the customer, deserved or not.
I have to agree. I would think that they could reconfigure their new car sales activities to at least break even. Despite some of the negative perceptions of dealers, lots of people still buy new cars there…or at least go to kick tires and then by used.
I can understand their perspective though. I looked at the books of a large dealer chain years ago, when Detroit was still relatively prosperous, and they lost money on cars year after year, whereas they typically made 2 to 3 grand per unit on used.
I live in central New Jersey and I’m seeing more and more used-car dealers that also provide vehicle service. It’s true (but perhaps not deserved) that having a new-car franchise adds to a given dealer’s credibility. But in some of the cases I see, long-time local auto-repair shops that have excellent reputations are adding used car sales. That may be the best combination of all.
New car dealers that particiapte with a manufacturers CPO programs for used cars (warranties / special rates), are being shortsighted in only counting their used car grosses.
If they would not be new car dealers, they could not participate in the CPO programs, they would not be doing warrany work on prospective CPO vehicles.
The biggest competitior to independent used car dealers especially when it comes to recent model used vehicles is the franchised new car dealer promoting CPO vehicles.
Take a look http://www.niada.com/ click on publication on the LH side.
Improved quality and durability of vehicles increased the value of used cars, and increased the availability of quality used cars. Improved materials, computer controlled engines eliminating the need for “tune ups” (and the damage to the vehicle when not done), platinum tipped sparkplugs good for 100K miles, etc. mean that cars can reliably travel well over 100K miles.
With a declining economy, the automakers are likely finding that (especially in the economy segment) their toughest competition is the used car lot
Funny that..exactly what happened to all the people who bought Daewoo franchises in Canada before they went bankrupt. They are probably more profitable now anyway.
Maybe Detroit should re-think the concept of dealership. Traditionally, showrooms have a field full of new cars on one side, a field full of used cars on the other side, and a parts/repair shop in back. This kind of establishment requires millions in capital and a large sales volume.
How about allowing for “mini-dealers” stores that would carry few or no new cars but have the usual used car lot, keep only a few demonstrators for test drives, have a small area (not much more than a desk and a computer would be needed) to take orders, and a factory-authorized repair shop to sell factory-brand parts and do warranty work?
Advantages: preserve point-of-sale presence in small towns and rural areas that can’t support traditional stores; preserve the means to handle trade-ins; reduce amount of capital and sales volume a dealer would otherwise need; and assure buyers that factory-backed service will be nearby.
Disadvantages: might conflict with state laws designed to protect traditional dealers from competition; no same-day delivery from on-hand inventory; probably require Detroit to carry more finished inventory; might outrage big dealers who could be undersold by low-overhead mini-dealers.
The idea might be all wet. But in any case, this is the time for some brainstorming in Detroit.
I do not see why 400+ Chrysler Dealers are upset about losing their rights to the Factory Used Car Auction Sales. Everybody knows that the last bidder that wins the auction is the same guy that all the other buyers think paid to much for the car. These dealers have a contorted way of thinking about the car business. They would rather sell a used car at close to the New Car Price than sell the new car. Unlike what some dealers think, a good salesman can make money on new cars! I suggest that Chrysler dealers that want to keep their Factory Auction Rights reorganize their sales force and knock out the dead wood, or make them just Used Car Sales People. Get People that sell primarily New Cars only and set up a pay plan that works for them. The used car guys will realize pretty quick that they will need to work harder and the new car guys will be going all out to sell the new cars and hit thir numbers. That way you hit your numbers too.
I’ve worked at small dealers that were out in the country. The dealer that I chose to work with had the Dodge, Chrysler, and Jeep franchises. All that they stocked were trucks and one’ies and two’ies of everything else. They actually believe that they can live off the large dealers inventories. I have never spent so much time on the locator. Then come June and July, I can’t get anything because I don’t have anything to give back. Talk about loosing business. It is only these Small dealers that get stuck with left over 2005′ in 2007 because they think that they are made of gold. Guess what? They all need to go!
I can’t deal wit the small dealer mentality, so I have gone to a large dealer in a car market that has more car dealers per capita than any where else in America. Activity breeds activity!
I truely believe that the little dealer will be forced out of Chrysler’s Used Car Sales Auctions because their company structure and pay plans dictate that it be so.
The Ford dealer I pass everyday on my way to work looks like one of those “mini-dealers”. They have 2-3 new Fords, Mustang GT(with all the boyracer options), Expedition, F-150(red). I know those 3 because they haven’t moved in 2 months. The rest of the 20+ cars are used Hondas, Mazdas, Toyota’s and Fords that sell. The office space is practically nonexistant with a 2 bay always empty garage next door. My wife and I can’t understand why they even have that falling down Ford sign on the door when they don’t SELL Ford’s. Oh the sign looks like a HS cheerleaders Homecoming banner, no joke. But they have a Pepsi machine that sells cans for $.35, probably the only bargain on the lot.
They are showing what good businessmen they are by hanging it up. Service and Parts alone can keep a franchise afloat- I kept a C-P point alive from 77-80 in Idaho (with a ppv of 50!) doing balls out service. But I have yet to see the dealer with a net of “2-3000” on anything, let alone a used car. Where can I get a franchise like that?
The new cars everyone wants are too expensive. Plenty of average and mediocre cars; but nobody wants those.
I always believed and saw it happen that dealerships were having to much inventory on their lots and stored around town.Incentives,rebates,and attractive finnacing has yet to keep inventory levels at a comfort level for floor managers at stores.UAW contract’s were as if plants were idle for weeks or slowed or lines closed,you could hear a big yahoo across the plant,as up at the state capital you could hear weeping in restrooms.I have always been a fan of walking in and test driving a demo and then sit down and order/ receive in 2 weeks is something that needed to be imbraced.That the big 3 assembly lines needed to trim production/close plants and hold vendors to order to line contracts/and quailty survellence be at a all time high.Binding dealership contracts with the big three was hurting the manufacture’s ability to trim dealership levels,excess buyouts and lawsuits,hamper the big 3 from closing dealership that were bought 45 years ago during the post WWII car and house explosion.For it was quite shocking to see five dealerships within a 10 mile radius of each other.When a older owner sold his 25 year old independent to someone else other than the big 5 mega across the nation dealerships,the first words out of his mouth to the district rep was were is my pricing control on my product within my zip or district.Honda and Toyota strictly inforce this issue with their dealers or they risk losing their fanchise to a line waiting out the door to buy their all to attractive manufacture contract’s.Big 3 need to hold inventory production to levels whice are sustainable to dealers.So many flooring models to show customers and let them order their own rather than buying a loaded out high MSRP car/truck with options never intended to be used by the customer and a payment way to high for their taste.A set of computers connected to assembly.Focus more on better warranty/service and improve their service bays to look more professional.Its applauling to see some of the service departments at the big three.New car/truck sales back of invoice are hurting other dealership within their own zip/district.This all to me seems that the big 3 have found a way to close stores.I could site more.This story is about how manufacture’s have found a way to start closing more store’s,give dealerships the strong will survive attitude and others will become used car dealerships with feed from the mega dealers and of course their is the auction lanes,hurting resale values by almost 35-40 percent,this also hurts the customers value of his 1-2 year old car/truck.And when gas soared through the roof austions were flooded with 2-4 year old big SUV’s and truck those resale value’s have yet to recover still to this day.Some of these issue’s have been address over the last 4 years,and some are still in the comment and implemation phase,also some of these issue’s will be resolve with the UAW contracts.More over though I miss the mom and pop dealerships I like the no pressure and hassle sale.Today Big 3 dealership sales staff have a alarming sales turn over.I was at a Big 3 dealership the other day and when a women ask the saleman how do you take the top down no one on the floor new how and the service manager didn’t have a clue either.The reason why I don’t state names or places is that my company does survellence data on dealership’s for district reps to try locate problems within their district,for their is not enough time in the week for a district rep to check all his stores.Much has been done and one can see the light at the end of the tunnel.It’s just a question does the Big 3 and the dealership’s want to walk hand in hand or is their this level of mistrust still there.I would hope so for the sake of over 1.5 million employees at the big 3 and not including the employees who believe in their product at the big 3 dealerships.They both have a huge state in this restucturing.Ah yes the American Dream…
The problem for the big makers is that the types of dealers dropping the franchises are exactly the kinds of dealers they would want to keep – dealerships with a reasonable following of customers, decent reputation and so on.
The ones desperate to keep the franchise will be the “chaff” dealers – ones that usually part of a big group and happy to sit back and sell reasonably popular cars, happy to sell to someone once only (so screw them in after sales or trade-in time) and ones which believe new victims will arrive every minute.
Some of these will become “car supermarkets” and some will take smaller, import makes. So if you don’t have a Perdua dealer near you now you soon will do.
With new cars needing more and more exotic servicing but at the same time remaining reliable even when the warranty runs out, and with people perhaps looking to keep a car a little longer than they used to the real growth is in service specialists.
At least two near me no longer sell cars they just “specialise” on a particular make, in this case SAAB and VW/Audi. They make money (enough to afford very decent “loaner” cars for example) and still cost less than main dealers.
Maybe makers should look at that too.
One question, do makers do “mystery shopper” type tests ? If they did then the Ford dealer near me would get 0/10 for the personal freshness of their salesmen.
From the story on Wards, “In 2004, Ford blocked dealership chain Asbury Automotive’s $88 million bid for the Baker dealerships. Ford said it didn’t want Asbury to acquire Baker’s Ford store, claiming Asbury underperformed at Ford dealerships it owned elsewhere.
“We’ll never forget that,” Michael Baker says of the killed deal.
He still has his Toyota dealership. Taxedandconfused has it right. I don’t think screwing over your dealers is a good practice and in this case the dealer had other profitable import dealerships. Imagine if someone offered you 88 million for your business and Ford nixing the deal.
Damn you, Capt. T! You stole my thunder! ;)
Seriously, I’ve been saying for years that the new car’s worst competitor is the used version of the same car. Cars nowadays are so well made that any decent car will be good for at least 100k if not more before needing any major repairs.
I don’t know what the stats are nationwide, but I know from my own personal automotive history that I generally keep a vehicle for about 4-6 years, and that I generally put between 80-100,000 miles on it in that time (actually, now that I’m out of college and law school and retired from the military, I’m not traveling as much, so that number will go down to probably 60-90,000.) I’d guess that my stats are on the high side of average, but still close.
So do the math: If I can find a gently used vehicle with 20-40k on the clock (and most import-brands have a 5/60 powertrain warranty) then I can be confident the vehicle will last for the time and the miles I need. Beyond that, who cares?
So, unless I just absolutely have to have the newest, latest, gee whiz product on the road (and I don’t), a 2-3 year old used car fits all of my needs perfectly well and will be thousands of dollars less than a comparable new car.
Because of this, the popular perception of used car dealerships is changing.
Yes, there are always the bottom feeders, the “we finance everybody” dealers, the “buy here/pay here” dealers, but most big cities are also now home to several large dealerships that sell late model used cars exclusively. These dealerships have service departments, they only sell clean, well taken care of 1-4 year old cars, and they have all the other trappings of a major franchised dealership (many of them are even chain businesses.)
I would think that any struggling franchise dealership that is stuck with a lot of dead metal from Detroit would jump at the chance to cut the corporate umbilical and concentrate on late model used cars where they can make a killing on the sale and on the financing.