Used Car Sales Hamper Auto Maker Rebound
02 Mars 2009 - 8:35PM
Dow Jones News
An increasing proportion of U.S. auto buyers are opting for used
vehicles despite incentives offered to arrest the brutal decline in
new car and light truck sales, according to industry
forecasters.
The combination of lower used car prices and promotions such as
extended warranties drove 50% of customers at franchised dealers to
opt for "pre-owned" vehicles in January, according to sales tracker
Edmunds.com.
The proportion compares with 37% just two years ago. Edmunds
also found in a 90-day survey conducted November through January
that about 500,000 consumers who would normally buy new vehicles
opted for used cars and trucks.
"People no longer feel they have to have the nicest, newest car
on the road," said Jesse Toprak, an analyst at Edmunds. "They're
realizing that the used cars of today are not the used cars of a
few years ago, and that realization is not positive for new car
sales."
Auto makers are counting on a spike in demand for replacement
vehicles to reverse the worst sales slump in decades. The U.S.
annualized rate is expected to fall to around 9 million when
companies report February sales Tuesday.
While some auto makers point to some stabilization in residual
car values, prices will be pressured as more supply comes to
market.
About 2.6 million cars and trucks, an 8.3% increase over last
year, are projected to come off lease this year and go directly to
the used car industry, said Tom Webb, chief economist with Manheim
Consulting, which tracks the used sector.
Additionally, many consumers are no longer renewing leases
because auto makers have scaled back the practice as their lending
arms have struggled to secure finance.
Dan and Judy Turner recently joined the used-car crowd. The
Michigan couple flipped through the ads and listened to the deals
for the past month before finally agreeing to put down their money
on a used 2008 Chevrolet Malibu.
"Why buy new now?" said Dan Turner.
"We both are employed but with this economy you just don't
know," said Turner outside a used car dealership in Troy, Mich.
Dealers are devoting more space to used cars on their lots,
while parts and repair specialists such as AutoZone Inc. (AZO) -
which reports earnings Tuesday - have also noted drivers are
hanging onto vehicles longer.
"New cars are frozen to the ground, but it's an absolute used
car frenzy," said John Rogin, a Pontiac-Buick-GMC dealer on
Livonia, Mich.
Used cars and parts and service departments have long been a
stable revenue stream for dealers, who find themselves under
pressure from slowing new sales and manufacturers' efforts to
streamline distribution.
The U.S. new car sales data, alongside declines already reported
in international markets, provide another test of Detroit's auto
makers to survive the downturn.
The shift to used cars, however, won't last forever since used
car prices will increase as demand shrinks, reducing the
differential with new vehicles.
"The growth in used car sales is somewhat self limiting," said
Paul Taylor, chief economist of the National Automobile Dealers
Association's Industry Analysis.
Financing remains generally cheaper and easier to obtain on new
cars compared to used, Taylor added.
This shift will probably take another 18 to 24 months, said Dale
Pollak, a 13-year dealer veteran and chairman of vAuto, which
provides software that helps dealerships track inventory and
pricing.
-By Sharon Terlep and Jeff Bennett, Dow Jones Newswires;
248-204-5532; sharon.terlep@dowjones.com and (248) 204 5542;
jeff.bennett@dowjones.com.