By on December 24, 2008

Ah, the good old days. When ‘Show me the money!” was the car business’ mantra and sub-prime loans were cooked-up in four font legalspeak and signed by anyone with a pulse. Not anymore. Dealers are dying en masse. Car values are going down the proverbial poop train. October saw average wholesale values descend a full six percent according to Manheim Consulting. November was another 5.7% chop. December? Well… let me just say that every dealership I see these days (open or closed) seems to have most of the same vehicles left on their lot. What can I say? It’s Christmas time and no one needs a car. Even a cheap one (except me of course). The auctions have about half the dealer traffic who are buying less than half as much. Even the mighty 800lb. gorillas of this business are falling fast. Carmax is a good example of the heartier dealer species. When I visit their weekly auctions in Atlanta I’m usually seeing half as many dealers attending their sales. The lower demand equates to far lower return on their trade-in’s, rejects,and repos. So much so that Carmax even cited it as one of the reasons why they posted a major loss this past quarter.

Of course, the bigger reason behind all this is America’s finance boogeyman who tried to get Bankrupt Billy to pay for the portly paychecks of America’s aging and indebted Peter, Paul and Mary’s. Who will be paying for this game of musical chairs? The taxpayer? Santa Claus? Our beloved allies in the world? I really don’t know. All I know is that I thought hell would freeze over before a 1997 Geo Metro, 1993 Lexus LS400, and 1992 Honda Prelude Si, all met the hammer at the parsimonious price of $500 a pop. Now my Hell will only consist of selling these old sleds to whoever can afford to actually pay in cash.

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23 Comments on “Hammer Time: The Disappearing Dealer...”


  • avatar
    drkphoenix

    Sad but anyone with eyes could see this coming. My hope is that after all this pain some really great cars and a better way to sell them comes out of the deal.

  • avatar

    Nobody will weep for car dealers, here or anywhere.

    –chuck

  • avatar
    ellomdian

    God bless the insurance companies and their extraordinarily long wait times on clearing checks.

    I thought waiting 6 months for a settlement was insane – now I realize it was really a gift in disguise. The dealer are literally salivating at someone paying Cash now – it’s saddening.

  • avatar
    yankinwaoz

    Wow… I just did a quick search of Craig’s List for a 1993 Lexus LS400. Saw a handful from $2k to $6k in asking price.

  • avatar
    50merc

    Thanks, Steven. I always enjoy “Hammer Time.”

    Just $500 for a ’93 Lexus LS400? Can’t it be parted out to get more than that?

    Maybe CarMax would do better if they cut their prices to speed up inventory turnover. Gosh, it looks like their prices on cars a year or two old are nearly as much as the incentive-enhanced deals available on new ones.

  • avatar
    dwford

    The customers haven’t disappeared, the credit for them has. It is frustrating to have a willing buyer and no bank to fund the loan.

    Customers who aren’t perfect but get approved face much higher rates and stiffer down payment requirements. Unfortunately, some are not wise to the new reality, balk at the deal and go down the road, repeating the whole process over and over, slowly dinging their credit score with repeated inquiries.

  • avatar
    Deepsouth

    The domestic franchise dealers are being squeezed from all sides. The auto manufactors offer little to no support to assist or insure a dealer’s profit. New car buyers often will purchase from another franchise dealer over $50.00 spread on a new vehicle and then demand service. The credit crisis has erased financing for the bulk of domestic buyers who are usually upside down or credit challenged. At present, a new car dealer has limited avenues to turn a profit. Fixed operations..aka..service, used cars, and selling finance products. Even these are no longer enough for most. In 2009, you will see much more consolidation and many franchises cease to exist period.

  • avatar
    dwford

    Deepsouth:

    And you wonder why a dealer will seize the opportunity to cash in when a lay down customer comes in…

  • avatar
    vvk

    dwford,

    I am pretty sure that a customer must have some money to actually be called a customer.

    That’s how we get single mom secretaries driving around in $45k SUVs. Say it ain’t so.

  • avatar
    ronin

    >>”…The customers haven’t disappeared, the credit for them has. It is frustrating to have a willing buyer and no bank to fund the loan….”

    Hence, the customers have disappeared. I want a pony and a house on Malibu and a flying unicorn, but I can’t afford it. So I’m not a customer, because the prices for those things are too high and I can’t afford it.

    Just like the prices of cars are too high, and they people can’t afford it. Not being able to afford to finance it is just another way of saying they can’t afford it. Ask the (remaining) workers at the car stores if they consider these guys customers, or just wastes of time.

  • avatar
    Hippo

    What are the typical requirements to get a dealer license so as to be able to bid at these auctions?

  • avatar
    levi

    Nobody will weep for car dealers, here or anywhere.

    –chuck

    I’ll second that.

  • avatar
    dejalma

    Ronin, that’s rough if you’re giving up on the flying unicorns. They are worth going into hock for.

    Did you know that they do make a model without the wings? A bit cheaper without the flying option.

  • avatar
    dwford

    A customer to me is a willing buyer. We might not get them approved, but they have a sincere desire to buy. They are not a waste of time. If they can’t buy today, we can help them understand what they need to do to buy in the future.

    Others – we call them Philip J Timewasters, just want to chat about cars, maybe take a test drive or two, then “think about it” or “talk it over with my wife.” There’s plenty of these guys around.

  • avatar
    mfgreen40

    Steve The auction stories are very interesting, I always thought it would be fun to be a used car jockey . keep writing

  • avatar
    JEM

    I guess I need to start looking for that $7500 Duramax 2500HD. And that $40K C6 Z06. There will be a price point at which I just can’t help myself.

  • avatar

    1993 Lexus LS400 for $500? Sounds like someone can race in the 24Hrs of LeMons in style.

    Steven, what have Jaguar XJs been going for?

  • avatar

    New car buyers often will purchase from another franchise dealer over $50.00 spread on a new vehicle and then demand service.

    I’d be down on my knees and give them all the service they demand. For ages, service and financing have been the only areas where good dealers made real money. Now it’s down to service. The warranty work on that $50 cheaper car alone is worth a mint: “FOR FREE, I’ll give your car a check-up and fix all that stuff that out-of state fly-by-night guy 200 miles down the road missed during the PDI. Did he mention PDI?” The real money is made back in the shop. Treat the customer with arrogance (“demand service”) and he’ll be at Pep Boys the minute the warranty runs out. Treat them well, and they’ll buy the next car from you.

  • avatar
    supremebrougham

    Mr. Lang and Mr dwford, since we are on the subject of car prices, I have a question for the both of you. I’m looking to finally trade off my trusty Olds (I need something with a bigger trunk and back seat for traveling), and I’m looking at an ’06 Ford Fusion. I found one at a Toyota dealer down near Detroit. It’s a 4 cyl SE auto with 24000 miles on it, and they’re asking $10500. Do you think this sounds like a good buy? My local Ford dealer here in northern lower MI has a similar one, with 10000 more miles on it and they want $5000 more for it. I guess what I am asking is do you think this would be a good decision in a used car? I wanted to look into a Toyota or Honda, but I can’t find a decent one for anywhere near this price point. I figure that seeing how Ford has the best chance for survival, I would consider one of their products. Thanks for your help!

  • avatar
    NulloModo

    Brougham –

    That price doesn’t seem bad for an ’06 Fusion SE, although I have seen lower mileage vehicles with more equipment go for slightly more recently (’07 Mercury Milan Premier (think Fusion SEL) 4cyl auto with under 3000 miles for $15000). Still, that Fusion has tons of life left in it, they handle well, and easier to find in a parking lot than a Camry or Accord.

  • avatar
    dwford

    Brougham,

    I agree with Nullo, that’s a good price. If you can swing the price, get an 07 SEL – you’ll get more equipment, and you’ll be sure to have the side curtain airbags and abs which were options on the 06 SE not standard.

    Prices can vary widely between dealers for no logical reason. If you find a dealer with an unusually low price on a car, it’s either been in a wreck or they’ve had it forever and just want to make it go away.

  • avatar
    folkdancer

    How does a dealer quit or go out of business?

    There are 7 dealers near me and 3 have noticeably reduced their inventories in the past few weeks. Are they consolidating with another store they also own? Are they moving vehicles to other dealers? It is hard to imagine they are selling so many vehicles and if they are wouldn’t the manufacturers be loading them back up?

    I don’t like very many car dealers but I still don’t want to torture them by asking questions at this time.

  • avatar
    NulloModo

    As an aside to what dwford said, don’t be afraid to ask any used car dealer for a carfax (or equivalent service) on the vehicle that you are interested in on the lot. My dealership takes pains to not put any vehicles up for sale that have any type of frame damage or moderate/major accidents in their past, but we still offer free history checks for anyone who is set on a certain used vehicle and wants more background.

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