With used-car sales expected to return to 40 million-plus units in 2009, the segment stands out as a bright spot in automotive retail. To help your store capitalize on this opportunity, Cars.com focused its April DealerADvantage Live webinar on how to align your retail strategy with your customer base and local market conditions. Dennis Galbraith, Cars.com’s vice president of advertising products and training, was joined in the discussion by two industry-recognized automotive experts: Art Spinella, president of CNW Research; and Paul Taylor, chief economist for NADA.

[qt:/da/wp-content/uploads/2009/04/State_of_UC_Market-b.mov /da/wp-content/uploads/2009/04/State_of_UC_Market_poster.mov /da/wp-content/uploads/2009/04/State_of_UC_Market.mov 320 240]

Reasons for Optimism 

Although first-quarter sales are tracking slightly behind the same period in 2008, Spinella said he remains bullish. Final numbers for the year should show a gain of 9 percent or more, thanks to loosening credit and pent-up demand.

[qt:/da/wp-content/uploads/2009/04/Optimism-b.mov /da/wp-content/uploads/2009/04/Optimism_poster.mov /da/wp-content/uploads/2009/04/Optimism.mov 320 240]

Taylor reports that the Federal Reserve Board’s TALF and TARP programs have allowed more car buyers to obtain financing. Shoppers with credit scores of 650 and below can now purchase vehicles. Even subprime buyers are receiving loan approvals, Taylor noted, through GMAC-sponsored programs. 

Such initiatives, combined with growing consumer confidence, will pave the way for previously hesitant consumers to move forward. More than 1.1 million people, Spinella said, delayed buying a used car from 2008 through March of 2009. 

“Ninety-four percent of those who’ve postponed a used-vehicle purchase say they’re likely to return to the market within six months to a year,” Spinella said. “That’s the highest rate that we’ve seen in more than a decade. There is the possibility, within the next six to eight months, of starting to see an explosion in terms of what’s going on with used-car sales.” 

Who stands to gain the most business? Whereas franchise and independent stores and private parties roughly divide the market in thirds during a typical year, Spinella predicts that franchise stores will edge slightly ahead in 2009. He said their share will increase to as much as 37 percent, at the expense of individual sellers. Independent stores should expect to remain relatively unchanged at 31 percent. 

Price to Sell 

With the anticipated spike in demand, Spinella advises dealers to remain competitive in their asking price to boost car buyers’ confidence about proceeding with a purchase. Used-car managers at franchise stores seem to be getting the message, he said, with their cars selling, on average, for 95 percent of their asking price — up from 92 percent a year ago. Independent dealers, meanwhile, are largely seeing their sales prices hold steady at between 91 percent and 92 percent. 

“Most consumers that are hot on a used vehicle at this point in time are very specific in terms of what they want, and what they need, and they’re willing to pay for it,” Spinella said. “Dealers have become more realistic in terms of how much they can squeeze out of a particular vehicle.” 

At the same time, Spinella and Taylor remind dealers to not work in isolation. While price typically isn’t a car buyer’s primary consideration, it does play a significant factor – one your competitors stand ready to exploit. 

“Find ways to price under the competition, find ways to present cars more effectively, find ways to source them more cheaply,” Taylor said. “You will be selling more because you will be out-competing the people down the street. That hasn’t gone away in this business. It’s still a fact of life.” 

Stock What’s Hot, Avoid What’s Not 

As you look to build your store’s inventory to meet that demand, Spinella and Taylor recommend you rely on your unique knowledge of your customer base and automotive industry tools that track what’s selling well in your community. While some cars and trucks may be tempting to acquire at auction or through trade-ins because of their low price, they may not be the sought-after vehicles that will turn quickly and hold gross. Regional variations, they noted, are particularly acute in the current economic climate. 

“You don’t go in looking for a deal,” Spinella said. “This market has gotten to the point where geographically what will sell extremely well (in one county) simply won’t sell if it were in a neighboring county. That’s how tight markets have become.” 

Car buyers similarly are less willing to travel for the vehicle they want, Spinella said. With most people preferring to stay within a 30-mile radius of their homes, he cautions against grasping beyond your reach to win business. 

Taylor agreed: “Buying right clearly is the first rule. The other thing is to speed that turn up. Just because the car is sitting there gaining a little bit of value doesn’t mean it’s helping profits at the bottom line of your dealership.” 

Another factor to consider is the price of fuel. While Taylor expects it to be less volatile in 2009 than it was a year ago, he urges dealers to be mindful of fluctuations during the upcoming peak summer driving season. 

“(Fuel prices) really do influence consumers’ behaviors about the size of the vehicle or whether to look for a V-6 or a four,” he said. 

Capitalize on Factory-Certified Listings        

Just as consumers purchase certified pre-owned vehicles because they can offer more bang for the buck than a new or traditional used vehicle, Spinella said small and midsize businesses show similar interest. Fleet sales among these companies rose 55 percent and 22 percent, respectively, in the past several months. 

“They still need vehicles,” Spinella said, “but they’re looking into the CPO market rather than looking at a new vehicle to replace something that’s fallen past its prime.” 

Cast a Wider Credit Net 

With some traditional lending sources unable or unwilling to provide loans to car buyers, Taylor recommends that dealers identify other providers. Credit unions and community banks were largely unaffected by the collapse in real estate values, he said, and may be interested in partnerships that help them reach new customers. 

“As that access to capital becomes greater,” Taylor said, “we think that helps the market as well.” 

Fish Where the Fish Are 

In good times, you typically balance advertising campaigns that drive traffic now and build long-term branding for your store. Galbraith suggests recalibrating those investments in favor of media that connect you with in-market shoppers and deliver measurable return on investment. He said that online media, compared with traditional channels (e.g., print, broadcast and outdoor), continues to supply dealers with record numbers of leads and customer contacts. 

“You know where to advertise for the millions who are looking to buy,” Galbraith said. “And you know that more of those who actually come into the store will come in ready to buy.”

[qt:/da/wp-content/uploads/2009/04/Profitability-b.mov /da/wp-content/uploads/2009/04/Profitability_poster.mov /da/wp-content/uploads/2009/04/Profitability.mov 320 240]

Additional Resources 

Looking for more advice? A recording of the April 2009 DealerADvantage Live webinar featuring industry experts Paul Taylor and Art Spinella is available in Cars.com’s DealerCenter. The site also provides tips you can implement in your store today to drive more traffic with your online advertising and desk more deals with your internet sales processes. You can read previous editions of our DealerADvantage newsletter or access our DealerADvantage LIVE webinar archives.