Automotive News - May 5, 2008 - (Page 30)

30 • MAY 5, 2008 The resilient dealer INSIGHT Record repos? Repossessions are forecast to jump steeply this year. About 80 percent of all repos are then sold at auto auctions. 2,000 1,600 Number of repossessed vehicles Repossessed vehicles offer dealers a profit opening Ryan Beene rbeene@crain.com 1,200 800 400 0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08* *Estimate Source: Manheim Consulting Vehicle repossessions are rising, and the trend could present new profit opportunities for dealers. Mike Farley, owner of Keystone Chevrolet in Sand Springs, Okla., sells about 300 used cars a month. He says his biggest profit margins come from cars he buys from repo auctions throughout the United States. Farley says repos bring in 20 to 30 percent higher profit margins than comparable used cars that his Chevrolet store receives as trade-ins. Even with those margins, repos also save his customers about 20 percent off the sticker price of a comparable trade-in, he says. Positive perceptions “People always think (they’re) getting a better deal on a repo,” Farley says. “Even in the housing market, people think they’re getting a better deal on a foreclosed house than they Lead Prospector Internet are on a house that’s listed. It’s the same perception.” Typically, Farley’s lot is packed with about 1,000 used vehicles. About 20 percent of his inventory was purchased from repo auctions, up from the 15 percent Farley usually carried before credit markets tightened, he says. Throughout the year, Farley’s dealership holds sales and promotes bargains on the repossessed, off-lease and rental fleet vehicles filling his used inventories. He calls the sales “the trifecta” for the marketing promoting the three types of used cars on his lot. Customers come “looking for a big discount, and a lot of times, they’ll get it,” Farley says. Repos rising As creditors tighten their grip on borrowers, the rate of vehicle repossessions is increasing. Last year, repossessions rose 10 percent, said Tom Webb, chief economist for the vehicle auction giant Manheim Inc. Webb told Automotive News he expects that trend to continue in 2008. That means more repossessed vehicles could be found at auctions and end up on dealerships’ used-car lots. “Repossessions as something that (dealers) buy at auctions generally offer pretty good profit opportunity,” Webb said. “A lot of wholesalers buy those repossessions because a lot of times, with just a little cosmetic work, they can be resold.” The key is finding high-quality vehicles at a repo auction — and that can be hit or miss. Farley says that if a vehicle is in poor shape, especially if it needs body work, he will pass on the car. If the car only needs general reconditioning, he will buy it. Webb said buying tactics such as Farley’s are standard for dealers who buy from repo auctions. “They’re not going to put a lot of money in these cars,” he said. “That would be throwing good money after bad.” See More Prospects SAVE 22% On Leads! Tainted image Find Your Next Online Customer Fully integrated into your dealer sales or customer relationship management system, Lead Prospector Internet delivers highly motivated leads directly to you, so you can quickly contact in-market consumers – and see more prospects. Sign Up by May 31, 2008 and SAVE 22% on Internet Leads!* Call Today • 866.491.4256 CREDCOservices.com/SeeMore *Offer expires May 31, 2008. Good for first 50 customers that sign up. One rooftop per offer. Call for details. Webb added: “The repo has a little bit of a stigma to it, so unless you’re doing a major event, you normally don’t advertise the fact that it’s a repo.” Some dealers shy away from repo vehicles because of negative connotations accompanying the term. “There’s enough bad news going around,” says Rob Mudd, president of Mudd Advertising Inc. In Cedar Falls, Iowa, which specializes in auto dealer advertising. “You’re better off saying, ‘We’ve got value in used vehicles starting at this (price) per month or this number,’ rather than saying you went to a repo sale and bought somebody’s bad luck, and now we’re going to turn around and sell it to you.” Although Manheim’s Webb acknowledges the stigma associated with the word “repo,” he said the term also can attract a specific type of customer. “To a certain extent,” said Webb, “the minute you say ‘repo,’ you’re enticing the customer looking for a bargain.” c http://CREDCOservices.com/SeeMore http://CREDCOservices.com/SeeMore

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Automotive News - May 5, 2008 Dodge dealers battle to bust Ram logjam Used-car price slump slams luxury makes INDUSTRY IN DISTRESS Tesla opens first dealership in L.A. Los Angeles Top auto execs to talk marketing at seminar Nader and the Corvair: GM edition tells whole story Dealers take Tundra to the people UAW official expects American Axle buyouts Ford plans more UAW buyouts at 2 plants Honda to some dealers: Upgrade or else Hyundai: Powertrains will take us halfway to mpg target Diesel dynamo Daimler cuts Chrysler value, again Ford domestic dealer count dips below 4,000 Seems like old times: More cash on the hood Toyota sister car poses a challenge for Subaru Suzuki to offer standard navigation in $16,000 car Mpg plan fuels states-rights battle Kerkorian interest buoys Ford stock Henderson: GM will keep tight rein on inventory Is it real, or is it just temporary? Ford Motor must stay focused on recovery 'Have you lost your mind?' Dealers are victims of Axle strike Federal oversight? Good heavens, no Geoff Polites: A salute Save a board seat for the UAW A car for everyone or cut, cut, cut, cut? Think of Buick as part of B-P-G Costs up in China, but bargains still abound Mexico sales fall 17% in March Obituary Hyundai reworks Sonata sooner rather than later Nissan's Dominique gets to the big dance Dana seeks new business with Japanese companies ZF will supply Nissan Certified Tool closes a plant German engineering company plans Ala. factory Dealers A Lexus colossus Used-vehicle leasing boosts showroom traffic Certified buyers opt for extended service contracts Repossessed vehicles offer dealers a profit opening Prepaid plans spark service visits beyond oil changes Key to managing floorplan costs: Be realistic Long-term loans: Convenience or bad deal? Dealers hunt upside-down buyers with leases, incentives and long-term loans Where have all the investors gone? Dealer rebounds from contract mess Dealers must choose: Reynolds, GM — or start over AutoTrader.com makes big pitch to bump up new-vehicle sales CAW, Ford reach extensive early labor deal Infiniti asks: Do you smell something? Sure, Nissan GT-R is impractical — but what a rush Faurecia: We'll break even in N.A. Suppliers join carmakers' charge into Russia Chrysler small cars, Jeep crossovers are hot A dreary April in Detroit Penske earnings rise in 1st quarter Lithia posts $1.9 million loss GM makes 2nd ethanol deal Group 1's earnings slip Magna profits down; sales rise AIADA picks dealer of the year Vox(wagen) populi — plus a sales pitch Wagoner's pension shift: More earlier, less overall COMMENT: Bargaining barbs will sting for a long time Bugging the boss: Who's listening to Porsche CEO? New models from the post office Critics have kind words for Pontiac's G8 Ford can't picture kids at design studio

Automotive News - May 5, 2008

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