Feeling Used

Robert Farago
by Robert Farago

Money, like energy, is never lost. As the U.S. new car market heads down a hidey hole– chased by high gas prices, a cooling housing market and a sluggish economy– the used car business is booming. That’s because Ditech’s right: people are smart. OK, well, they’re not stupid enough to repeat expensive mistakes. In the last five years or so, tens of millions of American got burned by buying a new car. They’re mad as Hell and they’re not buying new anymore.

“There were approximately 43m potential new-car buyers in 2007,” CNW Research’s Art Spinella reveals. “That's the lowest level in years, which has typically been in the 51 to 53m range." An increasingly large percentage of these new car disparu are buying used. In 2003, 11.6 percent of American car buyers replaced a vehicle purchased new with a used car. This year, it’s 17 percent– and rising.

Why wouldn’t it? Depreciation has kneecapped millions of [former] new car buyers. Although Detroit has sworn off fleet sales (the surest way ever invented to hammer the residual values of a retail model) and promised an end to new car sales incentives (the second best way to strip money from existing owners), in the first case, the damage has been done, and in the second, it ain’t over ‘til it’s over. And it ain’t over.

The post-Katrina SUV exodus strangling Detroit’s profits is an on-going situation. Hundreds of thousands of truck owners [still] want to dump their shiny gas hog for a more parsimonious vehicle. Unfortunately, everyone wants to do the same thing. Being upside down, backwards and SOL has eliminated or lowered both their purchasing power and their desire to get stuck (i.e. buy) in another new car.

The fantastic proliferation of models and the end of the traditional “model year change” has also led consumers towards used cars. With so many cars, trucks, SUVs and minivans from so many different brands, it’s hard for the neighbors to tell (or care) that you’re driving an “old” car. Even more importantly, the traditional used car downside has been virtually eliminated. The average car’s durability and reliability has made the words “Why would I want to buy someone else’s problems?” only slightly more relevant as “Remember the Maine!”

Just as the country’s brand patterns have gone bi-polar (split between domestic and transplant), there’s an increasingly large and rigid divide between new and used car buyers. Again, the latter is gaining ground at the expense of the former. CNW reports that the percentage of car shoppers looking for one- to four-year-old models doubled; from 2003's 16 percent to this year's 32.4 percent. The coming economic downturn will only accelerate the trend.

There’s not much hope that these used car buyers will return to the new car market anytime soon. That’s bad news for carmakers already throttling back on production. But here’s the weird thing: local used car dealers are also suffering; the so-called “independents” sold 3m used cars in October, vs. 4.5m in September.

Private sellers are also losing out. "A year ago, casual sales [a.k.a. private sellers] were responsible for 38 percent of used-retail sales,” Spinella reveals. “November, however, is tracking at barely 33.4 percent.” Spinella attributes the decline to cash-strapped owners looking to dealers for a quick and easy way out of their vehicle. Besides, there’s a new kid in town, ready to hoover-up any clean-looking used car it can find.

Franchised dealers are the big winners in all this. Perhaps it’s a case of “the lesser of three evils,” but used car customers are happier buying their pre-owned transportation from a nationally branded dealer than a corner car lot or a friend of a friend (who knows a guy). The recent and dramatic proliferation of manufacturers’ Certified Pre-Owned (CPO) programs reflects their snowballing success in the marketplace. Aside from Jeep Wrangler sales, Chrysler’s CPO program is one of the few profit engines for their entire business.

Clearly, manufacturers must quickly take account of the used car boom and re-examine their business plan. American carmakers (in particular) built their empires on a class-based theory of planned obsolescence. They depended on status-seeking new car customers buying an endless succession of bright shiny objects. These days, new cars compete with used cars as well as other new cars. Any manufacturer who doesn't promote pre-owned examples of its product line faces an enormous and growing competitive disadvantage.

In that sense, the new used car reality also requires a new attitude. Carmakers must learn to view the used car buyer as one of their own, rather than "sloppy seconds." They must use direct, positive, relevant and ongoing consumer contact to keep used car buyers within the fold. Woe betides the carmaker who continues to view owners of used cars bearing their brand as second class citizens; the company that masters America’s used car buyers wins.

Robert Farago
Robert Farago

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  • Martin Albright Martin Albright on Nov 29, 2007

    There's used and then there's used. My strategy for years has been to buy a used-but-new-enough-that-it-still-has-some-of-the-warranty-left vehicles. With most Japanese/transplant vehicles offering 5/60 warranties on the engine and powertrain (which is to say, the stuff that if it broke would be most expensive to repair) you can buy a vehicle that is 3 model years old and still has a large chunk of its warranty left. Best of both worlds: New enough to still have a little of that "new car" smell but someone else has already taken the biggest depreciation hit. I've bought 2 new cars (actually, trucks) in my life and will probably not buy another. There are too many late model used ones out there that still have some warranty (and a lot of life!) left in them. Of course, the person who can afford a $17k used car is not in the same boat as someone who can only afford a $3k used car. Since they will be long off warranty, a lot of the usual caveats apply: Get the inspection, check the car out throughly. But it's beyond question that the general increas in the overall quality and longevity of cars has been a real boon to those of us who don't buy new. A lot of misty-eyed Detroit lovers may talk about the golden age of the 1950's and 60's, but for those of us who like to drive, the golden age is right now.

  • Gentle Ted Gentle Ted on Nov 29, 2007

    This is a great article, thanks to the Author! I think most if not all Canadians buy used vehicles, its good to have them checked by Car proof or Carfax before signing anything and have them checked out by your own Garage for piece of mind

  • FreedMike Well, here's my roster of car purchases since 1981: Three VWsTwo Mazdas (one being a Mercury Tracer, full disclosure)One AudiOne FordOne BuickOne HondaOne Volvo I think I hear Lee Greenwood in the background... In all seriousness, I'd have bought more American cars had they made more of the kinds of cars I like (smaller, performance-oriented).
  • Kwik_Shift_Pro4X I'll gladly support the least "woke" and the most Japanese auto company out there.
  • Jmo2 I just got an email from the dealership where I bought my car and it looks like everything has $5k on the hood.
  • Lou_BC I suspect that since the global pandemic, dealerships have preferred to stay with the "if you want it, we will order it" business model. They just need some demo models on hand and some shiny bits to catch the impulse buyer. Profits are higher and risks lower this way.
  • Probert When I hear the word "patriot", I think of entitled hateful whining ignorant traitors to democracy. But hey , meant to say "Pass the salt."