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Old 03-30-2014, 08:13 PM   #1
adastra
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Default Future of Independent Used Car dealerships?

Honestly I don't see myself doing it much longer. New car stores are holding on to anything they can sell, and the Buy Here Pay Here's create a ridiculous auction atmosphere. People have less cash, and worse credit. Cars are getting so complicated that each make requires its own multi-thousand dollar computer to properly diagnose and repair.

It was so easy to get inventory when I started doing this 5 years ago. Auctions would be fun.

My lot is about 40% full at the moment. The only cars I can buy that stand a chance to make money on are projects, either mechanical or cosmetic, which means a 1-2 week delay before they hit the lot. Buyers are out there, but thanks to the harsh, slow winter and changing atmosphere, cars are not. While sales are still up, my margins are thinner than ever.

Thanks to the internet, people become experts after a 30 second internet search for book values. They are nastier when it comes to haggling as ever. Many have the gall to pretend to be cash buyers, then after negotiations say they need financing. Not a big deal if banks didn't charge me $500 to finance a marginal credit customer.

I'm lucky to have an opportunity pop up again that I passed on years ago. Normal hours, good salary, part ownership, and I'm out with people, not tied to a desk. If I say yes, I would be closing up about this time next year.

Doesn't seem that many of the old guard of independents around town are holding out either... many are choosing to retire.
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Old 03-30-2014, 08:49 PM   #2
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In the rural area north of Indianapolis it seems like more small stores are opening and closing in quick succession than I have ever seen. Acquisition is difficult for new car stores right now, so I can only imagine the struggles that an independent dealership might have right now.

At least there's light (and another opportunity) at the end of the tunnel for you!

-mr
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Old 03-31-2014, 01:17 PM   #3
XDCX
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Thanks for creating the thread - it's a really interesting topic.

We've had other threads on the forum that have discussed some of the challenges that small/rural new car stores are feeling and have questioned what their future holds. The consensus seemed to be that while it is much harder to make a small/rural store viable it can still work as long as the OEM doesn't use two-tier pricing or facility/equipment/training demands to drive smaller dealers out of business.

Concerning the independent used car stores, I have mixed thoughts.

I think it will be an uphill battle for the independent used car dealer who tries to compete by filling his/her lot with the same type of cars that are typically stocked by new car dealers or corporate used car operations like CARMAX. To your point, new car dealers have an advantage because they get some great used cars via trade-ins and corporate used car operations like CARMAX have an advantage in my opinion because they can use their size to recondition vehicles for a lower cost and to find and capitalize on regional pricing differences at the wholesale auctions.

That said, I think the Buy Here/Pay Here market will continue to grow and there are huge profits available for dealers who can control their receivables. It's not a business that every car dealer might want to be in but I still think there's money to be made here. (I'm also somewhat intrigued by the concept of Lease Here/Pay Here.)

I also think there's a future for independent used car dealers who carve out their own niche in their market and establish their brand. In the Phoenix area I've watched a used car store called "Certified Benz and Beemer" grow their operation into a very successful store. Here's a link to their website - click here

I also think there's an opportunity for the independent used car dealer at the lower end of the market (sub $5,000) since most new car dealers and corporate used car operations don't cater to that market.

Last edited by XDCX; 03-31-2014 at 02:04 PM. Reason: Added word - "don't"
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Old 03-31-2014, 07:03 PM   #4
AR2
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Quote:
Originally Posted by adastra View Post
I'm lucky to have an opportunity pop up again that I passed on years ago. Normal hours, good salary, part ownership, and I'm out with people, not tied to a desk. If I say yes, I would be closing up about this time next year.

Doesn't seem that many of the old guard of independents around town are holding out either... many are choosing to retire.
I don't know your situation or what this opportunity is, but when I read this part of your post, I immediately whispered "do it". Again, I don't know all the details, but it sounds like a much better deal, and it sounds like you might enjoy it more. I'm in the same situation in a job I really don't care for, but when an opportunity pops up for a different job, I feel my stress level go down and my outlook on life gets better. I felt that same feeling from reading your post.

The Ford dealer that I bought my 2003 Mustang Mach 1 from did what you mentioned in your last sentence. The owners were retirement age and the kids didn't get into the family business, so they decided to close up shop in 2011. They were one of the small, family-owned, rural independent dealerships and they decided it was time to hang it up. They all do something different in retirement now and I think they are really enjoying life.
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Old 03-31-2014, 07:38 PM   #5
possum
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Just today I received an e-mail from a terrific Chrysler Dealer, who like myself, was part of the 789 slaughter of '09. He has kept the store open, managed to keep employees, but now has finally given it up. This man, and his family have their lives in the business, but it just grew too hard once the franchise was stolen.

This is an extremely sad situation for a great family, but to the point....I agree the independent dealer has a closing window of hope.
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Old 04-01-2014, 08:27 AM   #6
adastra
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I started this business wanting to be German only. Worked well for a while, then the supply started drying up. It's been like this for 3 years.
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Old 04-01-2014, 01:10 PM   #7
mryan55
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Sad to hear of the story of one of the 789 who had managed to make it for five more years. I was at one of the 789 when that letter came almost five years ago, and not many of those are still hanging on after 5 years.
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Old 04-03-2014, 06:03 PM   #8
Flybrian
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You really have to tailor yourself to your market. Find your niche and exploit it.

My store is a suburban lot in an upper-middle-class part of a dense urban area (Tampa Bay, Florida) with a strong internet presence and both prime and subprime finance sources. I hold about 30-40 in inventory at any one time, plus access to another 10-15 units my partner/principle has for wholesale (mostly very late-model FoMoCo).

After experimenting with an economically-depressed area north of us (lots of traffic, just ZERO money), we've found this is a great little area.

My nearest competition is a <$4000 cash lot with ~12 units, a ~60 unit store that does BHPH I guess but is stocked with absolutely mediocre inventory (SWB Caravans? 7 to choose from!) and restrictive hours (10-4PM, no weekends), another ~20 unit store south of me with <$8k cars but looks very disorganized, and an 'indoor showroom' with ~40 high-line units (mostly European and traditional domestics i.e. Cadillac/Lincoln) - a very clean operation, but he asks ALL the money for his stuff.

My niche is in between - $4,000-$25,000 clean, late-model vehicles with a mix of...
Impulse cars - Corvettes, Convertibles, Kappa roadsters, Genesis Coupes, Mustangs, etc.
SUVs
Late-model millennial-cars - 3 years old or newer, subcompact or compact, under factory warranty, under $13k. A lot of people come in with 'first-time buyer' drafts from credit unions capped at $12k. This way, I can negotiate and get them out the door sometimes with $0 down. "Wait...I can drive away with no cash out of pocket on this '12 Mazda3?" Never gets a "no!"
Euro Luxury Cars - mid-range mid-mileage Audi/BMW/Merz and VWs
Jeeps
Diesel pickups - lot of retirees, contractors, and urban cowboys.
$5000-under - a couple decent cheapies (usually recon'd trades) for cash buyers.

I can't give away a minivan for the life of me and family non-luxury fullsize SUVs are hard to move, too.

Sorry for the rambling, but my point is to try to carve out your own niche based on the area you're in. And if you don't/can't deal with that type of inventory that meets your market, consider moving to one conducive to the products you want to carry.
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Old 04-07-2014, 07:54 PM   #9
adastra
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All sounds nice on paper if you can get the inventory. I have not been able to have a reliable source of inventory for 2 years. Auctions are thin and priced high. I've tried auctions in other states, other internet options, and look at CL daily for owner deals. New car stores are keeping everything and buy here pay here's don't care what they pay making auction prices ridiculous.

Thankfully old Euro imports slip through the cracks, as buy here pay here's don't like them. This is all I can get with a decent margin if they don't need much.

Selling is not an issue. Lot is even thinner now. Really hoping Kansas City pans out for me this week.
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Old 04-09-2014, 11:28 AM   #10
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KC was a disaster. No selection, still about half of what used to go through a few years ago... And retail prices. More at auction than what I can sell them for. I was able to get 2, both need minor pair and body work... Why they were cheap enough. Still may only clear a grand each on them after they're fixed.
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Old 04-10-2014, 07:59 AM   #11
mr4t60e
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This might be slightly off topic but since inventory supply issues were mentioned several times, I figured this is as good of a place as any to raise this issue.

Is the consensus among people buying inventory/running used car dealerships without a trade in stream of inventory that such high prices on the wholesale side are the "new normal" for the business, and eventually the retail prices will reach equilibrium with wholesale costs, or is this just a fluke of the market as a confluence of poor consumer confidence, weak income growth and all the other macro factors that influence pricing?
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Old 04-10-2014, 12:09 PM   #12
DealerEx
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Quote:
Originally Posted by mr4t60e View Post
This might be slightly off topic but since inventory supply issues were mentioned several times, I figured this is as good of a place as any to raise this issue.

Is the consensus among people buying inventory/running used car dealerships without a trade in stream of inventory that such high prices on the wholesale side are the "new normal" for the business, and eventually the retail prices will reach equilibrium with wholesale costs, or is this just a fluke of the market as a confluence of poor consumer confidence, weak income growth and all the other macro factors that influence pricing?
I think a lot of the problem is the proliferation of higher end BHPH operations. The buyers for them are really not concerned with the price they pay, as long as they know it is something they can sell easily. For example, last week I was looking at a really nice 2003 Dodge 1500 regular cab with 113k on it. wasn't a loaded up SLT, cruise & tilt but no PW/PDL, but it had factory 20" wheels and tires, and it was clean and shiny red paint. NADA ave. trade is $3450...clean trade $4225 and retail $6425. It sold at the auction for $6300 to a large, multi location BHPH dealer. If you paid that price and sold it for $7500, you'd have to get about $4000 down to get it financed at a bank or CU after TT&L. The BHPH store will put it out there for $9000 and get it because their customers don't care about the price as long as they can get it financed.
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Old 04-10-2014, 01:55 PM   #13
79LilRedExpress
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Another problem of late is retail customers, in the dealership, during auction runs.
What I mean is a dealer will invite a "good" customer to his office during a simulcast, have an agreement in place to mark up the purchase price that he, the dealer, pays by X number of dollars and watch as the dealer buys the car.
The customer perceives a good deal, the dealer has an easy sale, probably pays little or no commission and slams the customer on the back end.

This process will in fact artificially raise the MMR values and drive wholesale values of used vehicles up even higher.

Years ago if we took a retail buyer to the auction we could be barred from sale. But I guess its ok now if its on line.
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Old 04-10-2014, 06:43 PM   #14
adastra
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Yup, it's buy here pay here. Book will not go up because of them.

If it's Japanese, a truck, or SUV in nice shape, it's retail. I can only buy projects or cars not desirable to Buy Here Pay Here lots like European imports.
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Old 04-10-2014, 09:19 PM   #15
mr4t60e
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Originally Posted by adastra View Post
Book will not go up because of them.
That is what I was wondering. As a consumer, I'm happy my used car purchases aren't subsidizing the various credit criminals, but the reality of the situation is that pushing the independent used car dealers is bad for everyone because of reduced competition raising prices.

I do appreciate your input. Could you elaborate on why you don't think retail book prices will normalize even considering the BHPH decreasing inventory? I would think something along the lines of new car franchise dealers trying to move units with slim margins or the increase in the information that consumers have access to would be a factory, but I haven't been involved in that end of the car business since 2008.
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