COLUMN ONE : Used Cars Are Now the Hottest Wheels : The ‘pre-owned’ market has mushroomed, fueled by upscale customers’ sticker shock and fading of the stigma attached to buying older models.
The phones ring incessantly, customers scurry through the showroom--some lured by coupons for free canned hams--and George Hawes Jr. exhorts his troops to move the metal.
Wearing a dark plaid sport coat and a patterned tie, the burly, 30-year-old Hawes is a study in perpetual motion--barking into the phone, haggling with buyers, signing off on deals.
“Make a deal for me now,” one car salesman implores, seeking a high trade-in allowance for an eager customer. “You know it’s not worth $2,000,” Hawes replies. “But do it if you need it to seal the deal.”
It’s done and another used car is driven off the sprawling lot.
Welcome to Bob Saks Motor Mall, one of the biggest franchised new-car dealerships in southeastern Michigan. What sets it apart is that roughly six out of every 10 cars it sells have had previous owners--more than double the ratio of five years ago, according to Hawes, the used-car manager.
One customer, Jim Smith, recently bought a 1992 Chevrolet Caprice station wagon for $10,000. “I can’t afford a new car,” said Smith, a United Parcel Service driver with a wife and four children.
He has lots of company. In a fundamental shift in American buying habits, many cost-conscious consumers are buying used cars because new ones are too expensive.
“New cars are being sold increasingly to the well-to-do. It’s become like the boat industry,” said Arthur Spinella, an auto consultant with CNW Marketing Research in Bandon, Ore. “It’s not exactly what Henry Ford envisioned when he built a car for the masses.”
Once much maligned, used-car lots are achieving new respect as upscale customers seek out late models with low mileage and high quality, and franchise dealers eye used cars as major profit centers.
“The used car has come of age,” said Doug Dohring, an automotive consultant based in Glendale.
Consider:
* While consumer spending on new cars has remained largely flat for five years at less than $100 billion a year, expenditures on used cars have increased 67% to $55 billion annually, according to the U.S. Department of Commerce.
* As many as 45 million used cars and trucks change hands each year--three times the number of new vehicles sold.
* Franchised dealers sell more used cars than new ones and, more important, make more money from used cars.
* The popularity of leasing has created a new, hot-selling category--so-called “nearly new” cars. These low-mileage vehicles are returned to dealerships for resale within three years.
* The average price paid for a new car is about $20,000, up 24% from five years ago. Family income--about $37,800 annually on average--has increased at less than half that rate. The typical used car costs about $9,200.
These forces are rippling through the American auto industry. New-car sales are weakening after several years of increases, and would be even softer were it not for the millions of consumers being lured to the latest models by leasing.
At the entry level, small-car sales have slowed partly because consumers are buying bigger used cars instead of smaller new ones. That means, for example, that a slightly used Ford Taurus mid-sized sedan costs the same as a new Ford Escort subcompact.
Even luxury-car buyers are looking for bargains in hand-me-downs. Because most cars and trucks lose 30% to 40% of their original value in two years, buying a good used car can be a smart decision.
“The wise consumer today is buying a nearly new car,” said Dennis Virag, head of Automotive Consulting Group in Ann Arbor, Mich.
He recently bought a 1993 Lincoln Continental for $18,000--$15,000 less than the original sticker price. The vehicle had 15,000 miles on it, with 35,000 miles still under manufacturer’s warranty.
The new cars he considered cost $3,000 to $7,000 more. “I got more car for less,” said Virag, who was looking to save money as he puts two children through college.
Indeed, dealers around the country report brisk sales of late-model used cars. Sport-utility vehicles, minivans, mid-sized sedans loaded with options and luxury cars are among the favorites.
Demand is likely to grow: A recent survey conducted for the Dohring Co., an automotive research firm, found that 62% of consumers said high new-car prices would prompt them to consider buying a used car.
In January at the Greater Los Angeles Auto Show--normally a showcase of new and future models--Lexus, Toyota’s luxury division, displayed a used 1992 LS 400. The “certified pre-owned” vehicle carried a sticker price of $33,995--which is $22,635 less than the 1995 model nearby.
The auto makers insist that the nearly new vehicles showing up on dealer lots are not undercutting new-car sales. But analysts counter that they are certain to reduce these sales, just as program cars--those leased to rental companies for as little as six months--did in the late 1980s.
In the past two decades, Norman Wieland bought five new cars. But when he recently went looking for a new set of wheels, the prices jolted him.
Wieland, an Indianapolis landlord who makes $65,000 a year, had his eye on a 1995 Mitsubishi 3000 GT. The sports car’s cost: $30,000.
Instead he found a 1993 model of the same car for $18,000. Now Wieland, 50, says he may never buy a new car again. “Unless you have money to throw away, buying a new car just doesn’t make much sense,” he said.
The growing popularity of used vehicles also strongly suggests that a new car is not the measure of success it once was.
In a 1984 survey by CNW Marketing, buying a new car was second only to taking a short vacation in a ranking of consumer spending priorities. The same questionnaire last year found that buying a new vehicle ranked 10th in importance behind such things as buying a home computer, home appliances or a used car or truck.
The Dohring poll found that 64% of respondents saw no difference in prestige between ownership of a new or used car.
“A car is not a status symbol to me,” said John Ginikos, who recently spent $5,000 for a 1993 Hyundai with 10,000 miles on it. An Ohio real estate appraiser, Ginikos said that “I wanted something to get me from here to there. Most of my friends feel the same way.”
Marilyn Hans replaced her 4-year-old Acura Legend after it was damaged by floodwaters three months ago in Seal Beach. She considered a 1995 Legend, but was put off by its $38,000 price tag--$16,000 more than she paid for her 1991 model. She also looked at a top-of-the-line 1995 Honda Accord, but felt it offered little luxury for $26,000.
At her husband’s urging, Hans visited a BMW dealership in Long Beach where she found a 1992 BMW 525i that looked new--and exactly like a 1995 model--with all the luxury features she wanted. Pleasantly surprised, she bought the $30,000 car on the spot.
“I got a luxury car at a price I could afford and you would never know it’s not new,” said Hans, a housewife and former IBM saleswoman.
The changes are clearly being felt at the dealerships. For the first time last year, car dealers took in more money from used cars than new ones, according to the National Automobile Dealers Assn.
The auto makers are also feeling the changes. Since World War II, every economic expansion has led to a record in vehicle sales. In 1986, new-car sales peaked at 16 million. But more than three years into the current national economic recovery, sales in 1994 hit only 15.1 million. Some experts say a new sales mark is unlikely before the next economic slump begins.
The auto companies argue there is still a great deal of pent-up demand that should drive car sales higher. The average age of vehicles is nearly 9 years, the highest in 50 years.
This in part reflects the improved quality of vehicles produced during the last decade. But it also suggests that new-car prices are so high that consumers find it more viable to fix an old car rather than trade it in.
The average new-car expenditure more than doubled from $8,900 in 1981 to $19,200 in 1994. At the same time, median family income has increased just 45% from $22,400 in 1981 to $37,800 last year. The average new-car buyer has a household income of $51,000.
“More and more moderate-income families are being priced out of the market,” said Chris Cedergren, analyst for Auto Pacific Group. “That’s not good for car companies whose basic customers are average Americans.”
The auto makers only reluctantly admit that affordability is a problem. They argue that today’s car prices reflect the higher cost of added safety and emissions equipment mandated by the federal government, as well as new features demanded by the public.
Detroit officials also insist that sales of late-model used cars will not adversely effect new-car sales. “We haven’t seen any evidence of substitution of new vehicles with used vehicles,” said Richard Beattie, director of Ford’s leasing and used-car programs.
But with about 25% of new cars leased, a flood of high-quality used cars are returning to dealers. About 1.4 million vehicles will come off lease this year and more than 2 million next year, estimates the Strong Automotive Group, a consulting firm in Birmingham, Ala.
This is creating a new segment of vehicles--the nearly new--that have not been in large supply before. “It bridges the gap between new and used cars by giving consumers an additional choice,” said Don Kott, who operates a Ford dealership in Carson.
It is also driving up used-car prices, putting even more pressure on buyers who can least afford basic transportation. The change is also putting pressure on independent used-car dealers who are getting squeezed by greater competition. They often are left with the most unattractive vehicles--high-mileage, older cars.
Used cars are so lucrative that some franchised dealers put more emphasis on them than new cars. Jerry Chambers, owner of a Chevrolet dealership in Bellingham, Wash., gives used cars priority billing--placing them in the front row facing the highway and even displaying some in the showroom. He sells three times as many used cars as new vehicles.
At Bob Saks Motor Mall near Detroit, more than 400 used cars line the lot along the highway in front of the Oldsmobile, Dodge, Suzuki and Toyota showrooms. The new cars are located on the side and back lots.
“We believe used cars need to be displayed,” said Saks, who sold 3,500 used cars last year and 2,500 new cars. The showroom windows are plastered with signs for “slightly used cars” and “quality used cars.”
The used-car business still has an image problem. To many, the used-car salesman is an American archetype of a fast-talking, unscrupulous operator. Scams, such as odometer tampering, still prompt lots of complaints.
But as new-car dealers sell more used cars, they are raising the industry’s reputation. They assuage the fears of buyers by providing safety and quality certifications, warranties, financing options and follow-up services.
“The consumer’s biggest fear is that he’s buying someone else’s problem,” said Harold Sheehan, consultant for Key-Royal Automotive Co.
Some auto makers see the used-car business as a way to protect their franchise and develop buyer loyalty. Cadillac, Lexus, Infiniti and Mercedes-Benz are among luxury brands promoting late-model used cars.
The auto makers and dealers are also protecting their flanks. Independent used-car dealers have become a major force in some areas. In Zanesville, Ohio, for instance, Fink’s used car lot is the town’s dominant car dealer.
“Our business has increased every year since we opened in 1963,” said co-owner Gale Fink. “We have customers who can afford a new car but don’t see it as a good value since it might cost as much as they paid for their house.”
Even non-auto companies are eyeing a piece of the action. Circuit City, the electronic retailer, is engaged in a pilot program selling used cars much like it sells TVs and VCRs. It has opened CarMax outlets in Richmond, Va., and Raleigh, N.C., and plans two more in Atlanta.
“New-car dealers better take heed,” Sheehan said, “as more of these experiments develop.”
