Hammer Time: Best Little Whorehouse in Atlanta
I was sitting around with the COO of one of Atlanta’s largest dealer networks. They now have nine different dealerships. Most of which have historically catered to the upscale and affluent. That is until now. For the first four months of this year, 60 percent of their retail sales profits came from vehicles that sold for $4500 or less. New car. Used car. CPO. Everything. That completely floored me. Then he asked the very same question I’ve heard at least fifty times this year, “How many new cars would it take for us to make as much as we get from these sleds?”
The answer is zero. You just can’t make money with new and near-new because virtually everyone has found the fountain of frugality. New is out and near-new is almost as unmarketable because everyone shops these days and very few have real money. Even funny money. That leaves cheap trade-ins and wholesale flips for my friend, which are literally keeping some of these new car dealers above water. The quality of supply in the auction market for low end vehicles is just horrid these days. New car dealers have been keeping their trade-ins instead of blowing them out for quick cash at the auctions because the banks and the consumers are taking a step back from 10+ years of stupidity. Simply put, late model finance fodder no longer pays the bills. Cheap sells.
What does this mean for you, the customer? Well, let’s just say that new cars and newspapers have one thing in common: nobody really needs them like they used to. The same goes for lowballing your trade-in. Your ride may have a problem or two. But you would still be surprised how strong the under $5K market is and how many are literally fleeing opulence for affordability. To you this information may be the mirror of the news. For me? I see it confirmed whenever I see a cheap fashionable shitbox go for more money than it was worth two years ago.
More by Steven Lang
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It's hard to imagine established DEALERS looking to the sub-$5000 market for salvation. By virtue of the designation, this is principally a CASH BUY. Not at all conducive to the traditional DEALER doc fees, title fees, light fees, etc. Since it tends to be a cash sale, and mre usually PRIVATE SALE as well, it also eliminates a primary reason anyone would EVER buy a used car from a dealer, which is to "get bought" or relying on the dealers extensive network of crap financing vendors. The dealers would be well advised to stick to their knitting, unless they are going to start offering ignition interlocks GPS and buy here/pay here services. There is surviving and then there is being stupid. I also see this phenomena lately, but it's the customer having what I consider a beer budget and unrealistic attitudes. For instance, I get almost daily a request for "A reliable, good running late model car for under $5000". I laugh and say ..yeah me too". Then they'll really entertain me and add a "HONDA OR TOYOTA" onto that request. Ad I say sure, "1993 Civic with 143,000 miles on it". Sadly, alot of people have convinced themselves that a HONDA or a TOYOTA will prvide trouble free operation for another 50 or 100/k miles. Do they think they are "saving money". Whatever. Nothing wrong with comedy, as long as it doesn't waste too much of my time. And throw in a pinch of fear, recent fuel jumps / oil speculators back at work, ultra strict financing guidelines, crummy FICO's, auto co. bankruptcy and the unknowns of who the last men standing will be, and customers are just going to plug a hole in their transportation needs for a short time. This will not be a sustainable trend. It's nothing more than a short term phenomena. This is the "DAVE RAMSEY" model taking hold for the lower 3 income quintiles. More especially, it has taken hold in that meaty 3rd income quintile. "Drive a beater and eat beans and rice" while you pay off all your debt advice. And there is nothing wrong with that if you can do it for any consistant period of time. There currently is still ample supply of $8-10K late model (2-3 yr); 30K mileage, auction quality vehicles for sale. Alot of the usual suspects, fleet queens, and bore-mobiles, like the Spectras, Calibers, Cobalts, PT's, etc. And there are plenty of decent cars such a HHR's, Vibes; G6's, VERSAs; and lots more. Just not for "under $5000". They never existed, nor will they no mastter how many times Clark Howard tells you it does. Heck, auction fees, inspections, delivery, doc fees, and taxes alone eat up a grand or more. That's a totally different kind of car. And that's why I don't mess with anything right now that I can't sell for $9999.99 or less. It's usually a cash sale, or I have a few customers do the thing I grew up with, $5000 down and a 2 year loan from their credit union for the other %5,000. Now that's sensible.