Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – The used-car market “will continue to be where it’s at” for franchised dealers, says Tom Webb, chief economist for Manheim Consulting, a unit of Manheim Auctions.

Used-car sales rose 4% to nearly 37 million units last year. Next year, sales are expected to hit 40 million units, Webb tells Ward’s at the National Automobile Dealers Assn. convention here.

He projects light-vehicle sales will go from 11.6 million in 2010 to more than 13 million units this year.

Webb acknowledges his forecast is slightly higher than most predict. NADA Chief Economist Paul Taylor forecasts 12.9 million LV deliveries this year.

Franchised dealers often struggle with slim new-car margins. Pre-owned vehicles offer greater profit margins, which is why so many franchised dealers have stepped up their used-car operations, especially when new-car sales plummeted to 10.4 million units in 2009.

Used-car sales dropped, too, in 2008 and 2009, but not as dramatically as new-car deliveries.

Used vehicles will outsell new ones by a 3:1 margin, Webb says. “Retail sales and profits continue to shift in favor of used cars.”

Dealers often complain about difficulties in obtaining used-car stock because of high demands and low supplies.

But Webb says, “It’s not that tough to get inventory. Cars go unsold at auction every day. When dealers complain about the availability of used cars, they really are complaining about prices.”

He says he is happy “for the first time in a long, long time” to give an upbeat economic report.

But he adds, “We will fail to achieve previous peaks in employment, household net worth and new-vehicle sales prior to the next recession.” He declines to give an estimated time of arrival for that.

As the main author of Manheim’s annual Used-Car Market Report, Webb provides highlights of industry trends in 2010. Those include:

  • Manufacturer-certified pre-owned sales rose 7% to 1.6 million units.
  • An easing of subprime lending aided sales of lower-priced units.
  • Franchised and independent dealers recorded higher profits as increased revenue, adherence to cost disciplines enacted during the recession and better inventory management continued the turnaround that began in second-half 2009.
  • After a record number of dealership closures the previous two years, the franchised dealership count held relatively stable. It now stands at about 18,000 stores.
  • Dealers provided 3.8 million, or 45%, of the vehicles sold at auction, marking the first increase in dealer consignment sales since 2005.
  • The average dealer vehicle remarketed through auctions sold for more than $9,000, compared with just under $8,000 in 2009. That is despite having higher mileage.
  • From a cyclical low point of 1.1 million units in 2009, new vehicle lease originations rose to more than 1.7 million – an increase of more than 50%. But that won’t forestall the large decline in off-lease volumes the industry will experience in 2011 and 2012.
  • Lease penetration at Mercedes-Benz dealerships was highest (51.7%). It was lowest at Chrysler stores (9.2%).

sfinlay@wardsauto.com