Big Retailers Say They Won't Neglect Used-Vehicle Sales

Forecasters predict strong sales of new light vehicles this year, possibly as high as 14 million units. But executives representing six major dealership groups -- five of them publicly held and one privately owned -- say they won't neglect their used-vehicle business, regardless of what happens with new cars and trucks.

"To be a good retailer you've got to be a good used-car merchandiser," says Mike Maroone, COO of AutoNation Inc., the nation's largest dealership group. "We've got a big appetite to continue to grow the used-car business."

The executives' commitment to used vehicles is understandable. After all, used vehicles were there when dealers needed them most

• Used cars and trucks kept dealerships afloat when new-vehicle sales tanked during the worst of the recession.
• Certified used vehicles filled gaps in new-car inventories last year when production cutbacks strangled the new-car supply after the earthquake in Japan.
• Old high-mileage used vehicles were a source of profits when dealers started selling the vehicles on their lots instead of at wholesale.

Having strong used-vehicle sales allows dealerships to offer more money on trade-ins, which boosts consumers' ability to purchase a new car and yields more used-vehicle inventory for their dealerships, the executives say. It's a virtuous circle.

"If new goes up and used goes down it's hard to get ahead in the business. You've really got to drive both segments," Maroone says.

'Success story'
Rob Kurnick, president of Penske Automotive Group Inc., the nation's second-largest dealership group, says the retail industry is large enough for his company to increase its new- and used- vehicle business simultaneously.

"Used (sales) has been a great success story for us over the course of the last year," Kurnick says. "We'll be able to continue with used cars as well as absorb new-car demand."

Steve Landers, partner at the privately held RLJ-McLarty-Landers Automotive, says his group opened three CarMax-like used-car stores -- one each in Little Rock, Ark., Shreveport, La., and Huntsville, Ala., -- over the last year or so. He said the group plans to break ground on a similar used-car store in northwest Arkansas within a month. The stores specialize in late-model used vehicles, he says.

"We're just being a good aggressive used-car dealer," Landers says.

But as retailers press for more used-vehicle sales, they concede that finding used vehicles, especially those suitable for certified used-vehicle programs, is more challenging now than it was a few years ago.

That's because of a shortage of off-lease vehicles, normally a major source of vehicles for certified used-vehicle programs. Industrywide off-lease volume fell 17 percent to almost 1.8 million in 2011, data from NADA Used Car Guide show. The guide company predicts that off-lease volume this year will plunge another 22 percent. Off-lease volume has dropped as a direct result of large banks and finance companies abandoning leasing in 2008-09.

Realistic challenge
Lithia Motors Inc., has set a long-term goal of selling 1.5 used vehicles for every new vehicle it sells, up from the almost 1-to-1 ratio it sells now, says CEO Sid DeBoer. Finding enough vehicles to reach that goal is a challenge, but possible, he says.

"It's having a qualified used-car person that knows the market and can find the cars," says the top executive at the nation's ninth-largest dealership group. "It's mining every other dealer in the areas we do business in; it's being at the auctions; it's working with manufacturers on lease returns and finance companies on repossessions.

"It's buying cars directly from the consumer -- that's a bigger piece of how we're finding cars. It's all of the pieces. It won't be a shortage of used cars that keeps us from our goal."

Michael Kearney, COO of Asbury Automotive Group Inc., says his company plans to continue its Asbury 121 (pronounced "1-to-1") program that it started in January 2010. Its goal is to sell an equal number of used and new vehicles.

The program emphasizes selling older, high-mileage vehicles taken as trade-ins. At the end of the third quarter of 2011, Asbury's used-vehicle sales equaled 82 percent of its new-vehicle sales, Kearney says.

"We have a used-car team that is fully dedicated to acquiring inventory and training the store to do trade walks to make sure we don't lose any trades," he says.

Pete DeLongchamps, vice president of manufacturer relations and public affairs of Group 1 Automotive Inc., says the company will certify any used vehicle that meets certification standards and will sell any older, used vehicle if its quality meets Group 1 standards.

He adds: "We'll never slow down our emphasis on used cars."

(Source: Automotive News, 01/30/12)