LAS VEGAS, Nevada - Price is obviously a major selling point for used-car buyers. No less obvious, it's a big issue for used-car dealers, who need to get back what they paid for the vehicle, along with compensation for their expenses and suitable profit. When prices are fluctuating considerably, as they have been over the past year, dealers have a harder time determining how much they should pay for the car at wholesale, and be able to resell at for a tempting retail figure. That's the nature of retailing, whether it's for cars, appliances, houses, or any other commodity.
Pay too much for a car, and it's likely to languish on the lot, unsold, for months - wearing a hefty price tag that sends prospective buyers searching elsewhere. Lower the price too much, and the dealer might not even get back what he's put into the vehicle - especially if appropriate expenses are added into the total.
Although the credit crisis is still a driving force, it hasn't necessarily affected the way dealers are buying vehicles for resale. "You're still buying the car for the best price," said Tyler Corder, CFO of the Findlay Automotive Group. "The car's worth what it's worth.... You're still buying to market." Several participants noted that dealers might complain about high prices of vehicles they're buying for resale, but they're the ones raising their hands to bid at the auctions.
"Prices are starting to come down," said Ricky Beggs, vice-president and managing editor of the Black Book valuation guide. Dealers had been wondering, "How high can it go? When will it stop?"
Juan Flores, director of vehicle valuation at Kelley Blue Book, has observed a year-over-year increase in values of 8.5 percent, led by SUVs. "Something had to give," he said.
Joe Spina, senior manager of remarketing at Edmunds, noted that prices in some segments are as high as they've ever been. This pricing phenomenon "caused consumers to want to educate themselves," Spina suggested.
"I don't think we're going to see a dramatic downturn in prices." said Jonathan Banks, the new senior director of editorial and data services for the National Automobile Dealers Association (NADA). Banks cited "irrational exuberance by consumers" as one cause for the wide swings in prices over the past year or more. Consumer interest moved to fuel-efficient vehicles, then back again as fuel costs dropped. "Chasing those values up and down, following consumer emotions, is a dangerous thing to do," according to Banks
"Fuel-efficient segments need to correct from their over-correction," KBB's Flores said. SUVs and pickups may be too high right now. "The whole idea of smoothing out trends is, I think, a thing of the past."
Richard Howse, director or remarketing and auctions for Volkswagen Credit, explained the difference between "upstream" and "downstream" selling. In the upstream mode, the seller sets the price (higher). Downstream: selling means the buyer sets the price.
Asked how well Chrysler products will hold their value, as Fiat takes the helm of the company, Allison Weller said she couldn't speak with respect to Fiat at this point. But "I do think they'll hold value [because] they're decreasing supply. There's still demand out there," said Weller, the senior manager of strategic projects for Chrysler Financial. "We've only seen increases in value over the year."
What does the future hold for used-car prices? Escalating fuel costs at some point probably will take many shoppers by surprise, triggering yet another - likely short-lived - shift to fuel-efficient cars and shunning of guzzlers. "The consumer has a short memory," Ricky Beggs concluded.
After President Obama introduced the Cash for Clunkers program this past summer, it received plenty of both praise and criticism. Without question, new-car sales shot upward, pleasing dealers and manufacturers - and the customers who earned whopping rebates from the federal government for trading in an old guzzler. Critics, meanwhile, charged that the benefits fell well short of the amount of money spent on the program.
"Perception of a $4,500 direct payout to the consumer helped," said KBB's Flores. Still, "the minute you complicate a program," that's asking for trouble. Cash for Clunkers didn't put as much pressure on used-car prices as expected, in Flores's view.
Others disagree about the effect on valuations. "Used car prices came up quickly," said Matt Traylen, senior director of economics and portfolio services for ALG, referring to the gap between retail and wholesale figures. "It was no surprise that values went up," said Jonathan Banks, recently named senior director of editorial and data services for NADA. Cash for Clunkers was a "direct stimulus that affects a consumer's income." Before long, "dealers started scrambling for inventory." The program "almost started to become irrational." On the other hand, Banks pointed out what many other experts have: that most of the shoppers who bought a car during the Cash for Clunkers would have bought one later, had the program not existed. The program served as a "pull ahead" for the market.
Ricky Beggs, vice-president and managing editor of Black Book, put it simply: Cash for Clunkers: "did what it was designed to do."
So, do editors of each guidebook look at the competition? "Our customers do it for us," said Ricky Beggs, vice-president and managing editor of the Black Book, which is considered a virtual "bible" by many frequent bidders at the wholesale auctions. While making recent adjustments in valuations, Ricky Beggs observed that 99 percent of the models were down in value. But most of those were seasonal adjustments, taking place in the fall. Earlier this year, the NADA (National Automobile Dealers Association) price guide was criticized for having prices that were too low. They were "not following the market," said Jonathan Banks, the new senior director of editorial and data services for NADA. "We are going to reflect the market," Banks said. Future NADA guidebooks will have "legitimate auction value that follows the market."
Kelley Blue Book is used more often by consumers. People used to buy Kelley guidebooks mainly to sell their own vehicle, said KBB's Flores. As for "the idea of introducing subjectivity, you can't do that anymore," Flores said.
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