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As Good As Used

The secondary retail and finance markets didn’t dominate the headlines in 2011, but used cars and subprime lending are key to continued growth in the year ahead.

March 2012, F&I and Showroom - Feature

by Tariq Kamal

Manheim’s trio of (L-R) Sandy Schwartz, Tom Webb and Joe George was on hand to deliver Webb’s annual used-car report and demonstrate several new, web-oriented auction tools.
Manheim’s trio of (L-R) Sandy Schwartz, Tom Webb and Joe George was on hand to deliver Webb’s annual used-car report and demonstrate several new, web-oriented auction tools.

In the automotive industry, 2011 will be remembered for a remarkable series of events. The Detroit Three climbed back from the brink. A massive earthquake and tsunami struck Japan, killing thousands and disrupting Honda’s and Toyota’s supply lines. General Motors reclaimed its crown as the world’s No. 1 manufacturer. TrueCar went from partner to pariah. It was a hell of a year.

But the dealers, executives, experts and analysts who gathered in Las Vegas for the 2012 NADA Convention & Expo weren’t distracted by the headlines. From the educational sessions to the press briefings, they described a market dominated by a scarcity of used cars and the resurgence of subprime financing.

Manheim: ‘An Inadequate Supply’

When Tom Webb, Manheim’s chief economist, began his annual used-car report at Manheim’s Feb. 4 press briefing, he noted that many of his PowerPoint slides were unchanged from last year’s presentation. He said that “significant reductions” in off-fleet, off-lease and trade-in units continue to hamper dealers’ efforts to maintain an ideal inventory of quality used cars.

“There was an inadequate supply to meet dealers’ needs last year,” Webb said, noting that the long-awaited return of three key channels has yet to materialize:

• Off-rental units declined even as their fleets grew, indicating longer hold times industrywide.

• Lease originations grew to 2.1 million units in 2011, a 17 percent increase over the prior year. That’s a million-unit improvement since 2009, when leasing bottomed out at 1.1 million units. The resultant wave of off-lease units, however, won’t arrive until 2014.

• In the same two-year span,
repossessions dropped from a peak of 1.9 million units in 2009 to 1.3 million in 2011, a decrease of 32 percent. That trend will likely be the first to reverse as the economic recovery rolls on and creditors continue to relax underwriting standards.

Despite the short supply, demand for quality, late-model used cars remains steady. Webb reported that in 2011, total U.S. used-car sales reached a four-year high of 38.8 million units. Private-party sales accounted for 11.2 million sales last year, while franchised and independent dealers each delivered 13.8 million used vehicles — representing an 8 and 6 percent increase, respectively. Factory sales of certified pre-owned units hit a new record of 1.7 million units.

Webb said dealers deserve credit for helping to rebuild the economy, saying that a renewed focus on “good old-fashioned customer service” was helping to drive sales. Manheim’s president Sandy Schwartz agreed. He and Joe George, the company’s group vice president for digital, were on hand to present the official debut of Simulcast Everywhere, the company’s new online auction tool.

The new solution was designed to allow dealers to buy and sell inventory without having to haul vehicles back and forth to a physical auction. Instead, Simulcast Everywhere expands on the existing Simulcast and platforms by offering a fully transparent, real-time auction, complete with live auctioneer.

Schwartz said the platform was built based on dealer feedback and designed to help reduce transportation costs and keep used vehicles moving while inventory remains scarce. “We re-engineered our business … not just to cut costs, but to invest in the future,” he told the press. “We still believe cars will go through the lanes.”

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