by Mary Wisniewski

“Inventory gets smaller and smaller every week. You can [still] grab what you want. It just takes more work to find good cars.” — Ward Fleischmann, General Manager, Seattle’s Best Cars

If the auto industry had a theme song for this past year, it would be The Temptations’ “Ball of Confusion,” says Harry Seretti, a car buyer for a dealership.

Why? Beyond unemployment hovering around 10 percent and spandex-tight credit, used-car buyers face the extra hurdle of soaring price tags because of limited supply. Translation: The used-car
industry has defied the recession shopping odds. In short, it’s not a buyer’s market.

Indeed, roughly eight million fewer used cars and trucks entered the U.S. market in the past two years, according to the December data from AuctionNet, a joint effort of the NADA Official Used Car Guide and the National Auto Auction Association Services Corp. Fewer new vehicles, in turn, mean fewer used cars, and limited stock means higher price points. The Manheim Used Vehicle Value Index soared to 118.1 in February, up 12.6 points from the same month of 2009.

“We’ll start to see an ease to the used-car shortage, but it will be several years before the supply returns to the average of the 1998-2007 period of strong new-car sales,” said Paul Taylor, NADA chief economist, in a statement.

In other words, an auction these days is like a New York City Foley & Corinna sample sale, but instead of hordes of females fighting over cheap frocks, dealers are battling for more-expensivethan- normal cars.

Seretti, who buys for Hickory, Pa.-based Corwin Sales & Service, says the Manheim auction he typically attends has been running six to seven lanes per auction, compared with 14 to 15 lanes previously.

“Half the doors are shut,” Seretti says, explaining this forces him to pay more per vehicle. “You have to have something on the lot. You can’t sell air.  That said, Seretti says he has become a more selective buyer, targeting late-model vehicles in particular. “We do pretty well with pre-owned Jeeps and Ford Escapes,” he says.

Shopping is a Battlefield

Beyond higher price-point woes, lending draughts and the escalating unemployment rateare exasperating the used-car buyer’s shopping experience.

“Banks are a big problem,” says Bruce Patchett, who helps buy inventory for the Bruce Auto Mart in Hillsboro, Ore. In particular, the hefty payment banks now require upfront from consumers is curbing car sales. Credit unions, meanwhile, have provided some solace for Patchett, with their more flexible and liberal terms.

And like Seretti, Patchett views an auction more like a battlefield these days as he pays steep prices to get quality cars.

“It’s definitely a challenge to find vehicles thatare higher quality,” says Mary-Beth Kellenberger, global aftermarket program manager for Frost & Sullivan’s automotive and transportation division. “We suspect that vehicles being moved into remarketing systems are older than what they have been and are not maintained as well,” Kellenberger says, adding that limited supply of used cars, coupled with a questionable economy, is making shopping competition fierce.

Kellenberger anticipates finding quality cars to remain challenging heading into 2010, if not even a little more difficult than in 2009. But extra hardship doesn’t mean dealerships are drastically changing their shopping strategies from previous years. Consider Seattle’s Best Cars, formally known as Saturn of Renton, in Washington. Although it has morphed into an independent for now, its shopping strategy is largely unchanged. The only difference? The time requirement. “We’re trying to find good used cars,” says Ward Fleischmann, general manager. “We’re at auctions every week and online buying every single day…Inventory gets smaller and smaller every week. You can [still] grab what you want. It just takes more work to find good cars.”

Dealerships cite Cash for Clunkers as one culprit for limited used-car inventory.

“What killed the whole business is Cash for Clunkers,” Seretti says, explaining that the government initiative encouraged many people to simply overbuy.

Seretti isn’t the only one bemoaning the C4C aftermath. The National Independent Automobile Dealers Association, for another, hasnoticed an uptick of buyer’s regret perpetuated by C4C’s enticements.

Buyer’s remorse is three to five times higher than it was before Cash for Clunkers, says Michael Linn, executive vice president and chief executive of the NIADA.

“People are stuck with new car payments,” he says. “There are a lot of delinquencies. A lot of [consumers] thought things will get better. Now, they find themselves laid off.”

The Source

To overcome any lingering C4C strife and track down quality vehicles, dealerships are relyingmore on inventory-management systems andresearch skills. Seattle’s Best Cars’s Fleischmann, for one, depends on vAuto and the Internet as his main sourcing tools. Typically, he spends an hour or two online everyday researching inventory. His other sources? Primarily Manheim, with additional guidance coming from other industry guidebooks like Kelley Blue Book. “Manheim is usually a good gauge of what people are paying,” says Fleischmann. And Manheim is offering dealers new ways to tap into its information.

A mobile version of its Manheim Market Report meant to help on-the-go dealer customers with their research launched last February. Adam Thrasher, sales and service operations manager at VW Hyundai of Murfreesboro, in Tennessee, was one of the product’s beta testers and says the tool is easy to use. Most importantly, the mobile app saves Thrasher time — when he attends auctions, he can remain outside to scope out inventory. Without a mobile app, he would have to go inside the auction house to research a car’s details.

“You can have all of the information within 30 seconds to a minute,” he says. Not only is Thrasher turning to tools like this one, but he is also expanding his search radius and looking at every possible sourcing avenue because of the used-car deficit. Specifically, he uses Enterprise, Hyundai auctions, OVE, Openlane, and referrals from his auction reps, to name a few.

“The more resources I have to try to find cars, the better I am,” Thrasher says.

Beyond inventory-management systems and Internet resources, quality condition reports are also helping dealers source vehicles, says Ricky Beggs, managing editor of Black Book. “It’s been a key this past year,” he says, explaining that condition reports have become thorough, accurate, and easy-to-read.

Finally, never underestimate the importance of luck when shopping. “You just roll the dice,” says Corwin’s buyer Seretti. “Buy cars and do the best [you can].”

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by Marcie Belles

Gone are the days of waiting a week or two to sell trade-ins at auction. With used cars in short supply, dealers are honing their strategies for selling unwanted vehicles right off their lots.

Take the John Eagle Auto Group, for instance. Toward the end of each month, the trade desk at the Dallas-based chain swings into action.Trade-ins on a lot more than 45 days are at thetop of the list to be sold to another of the group’s 14 dealerships. “It becomes our own internal auction,” says Jim Flint, corporate director of interactive sales and marketing for the John Eagle dealerships.

Each of the group’s stores — which include Acura, Aston Martin, Honda, Mazda, Scion, Toyota and Volkswagen franchises — decides which units to buy based on its client base. “We have one store in downtown Dallas, and another in the suburbs,” Flint says. “Hybrids like the Honda Insight might sell better downtown. It’s done on a case-by-case basis.”

“Wholetail,” a cross between wholesale and retail, is another method John Eagle uses to sell unwanted trade-ins. Before sending a car to auction, the dealership group might post it to a site like eBay. “We would get less than [the] retail [price], but more than wholesale,” Flint says. Despite the pricing advantage, the percentage of cars that John Eagle wholetails is relatively small. The dealership group’s trade desk handles the bulk of the trades.

Meanwhile, Arelco Inc. has moved away from wholetailing because the sour economy has spurred some customers to buy older, higher mileage vehicles.

Typically, Arelco stocks one-to-four-year-old cars. “Normally our clientele is looking for that,” saysDavid Pilcher, executive vice president of the Indianapolis-based dealership. “We get trade-ins that are six, seven or eight years old. In the past, we never put them on the retail lot.” But with consumers wary of potential layoffs, they have shied away from big-ticket purchases. “Because of the fundamentals of the market, a lot of folks out there are making shorter term decisions, buying $4,000 or $5,000 cars rather than $12,000 or $13,000 cars,” he says.

As such, Arelco puts those trade-ins on the front lot. “They are sold ‘as-is,’” he says. “They are not meant to be like [the] rest of our inventory. They might have smaller things wrong with them.” The bottom line is that Arelco is “making good money on those,” he says. “We don’t post on eBay anymore. And instead of getting wholetail, we’re getting retail.”

In the past year, Arelco has sold about 20 units per month that way.

Online Sales
Other pre-auction strategies dealers employ to get rid of unwanted trade-ins are called “upstream”and “midstream” remarketing. Both entail selling vehicles via online auction sites. Essentially, aged inventory is posted for sale online while it’s sitting on the dealership lot — i.e., “upstream” — or as it’s transported and awaiting physical auction — “midstream.”

“We may move the car from retail lot, but keep it posted online,” Pilcher says. “The physical auction might run only once a week. This way, we keep it online and still try to sell it.”

By selling cars upstream, dealers can save transportation and reconditioning costs, enabling them to reduce prices.

“We’re working hard to develop more upstream capabilities, to sell cars before they have to go to auction,” says David Stolt, senior director of remarketing for Hertz Corp. “We are working to build an Internet-based retail program, to sell cars to the retail community. A lot of effort is going into that area. If we develop channels further upstream, we can save transportation costs.” DollarThrifty Systems Inc., meanwhile, is working to bolster its direct sales force, to sell cars from its rental fleet to buy-here, pay-here dealers. “We put a direct sales group together five or six years ago,” says Randy Rawlinson, DollarThrifty’s director of remarketing. “We probably have 20 people in total in the marketplace, but we have ramped up a little bit.”

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