Falling credit scores are helping to drive up used-vehicle revenues as more buyers turn to subprime loans and pre-owned units.
Subprime loans are still hard to come by for new cars and not as easy to get as before for used cars. But that lending segment is showing more signs of life now that the credit freeze is thawing.
Moreover, many consumers, hit by the poor economy, have seen their credit rating downgraded to non-prime and subprime.
Several franchised dealers have opened dedicated car centers classified as suitable for nonprime-qualified customers.
One of the first such centers was opened 15 years ago in Toledo, OH, by the Brown Automotive Group, representing General Motors and Honda brands. Nearby Taylor Cadillac-Kia has one, too.
Although securing subprime loans for customers remains an issue, it is not the main one for used-car operations, says Ed Rykulski, used-car manager for the Al Serra Auto Plaza, Grand Blanc, MI.
“Subprime is not as crucial for us as the shortage of decent used cars,” he says. “The fact that owners and fleets are keeping their units longer is a real problem. We employ 18 salespersons in the sales center and buy heavily at the auctions to keep sales at 2009 levels, when we sold 3,212 used units.”
Nancy Koehrman, a saleswoman at Taylor Used Car Center, and Toni De Santis, a saleswoman for Brown's used-car store, cite another trend in the used-car trade that skews towards subprime: employment of saleswomen.
“Women customers prefer women to be handling the vehicle selling and the finance and insurance side, too, especially if they've been classified as subprime,” Koehrman says.
“It's no picnic for a woman to be downgraded from the new-car showroom to subprime. But we can be more sympathetic and have the cars on hand for which they can qualify,” she adds.
Rick Rexroad, used-car manager of C&O Motors, attributes the $56 million in revenues his department took in last year to a local subprime surge, an increased inventory and promotion of high-quality pre-owned cars from the five brands featured at the St. Albans, WV dealership: Chevrolet, Toyota, Scion, Nissan and Lexus.
Subprime is a growing segment, a sign of the economy. New data from Fair, Isaac and Co. Inc., shows 25.5% of adult consumers, nearly 43.4 million people, now have credit scores of 599 or below.
Adding to the subprime pool, according to FICO, is a decline of consumers with scores in the 650-699 range.
General Motors Co.'s impending purchase of subprime-lender AmeriCredit “should enable more GM deals to become approvable and open the market wider for those with scores below 700,” Rexroad says.
The leader in both used- and new-unit sales for the Ward's Dealer 500 is San Antonio, TX-based Ancira Enterprises Inc., owned by Ernesto Ancira, Jr. Ancira.
He is the only dealer on this year's list whose combined sales exceed the 10,000 mark, with 5,837 new units and 4,351 used.
“It was a goal we were delighted to reach,” says Ancira's used-car manager, Jerry Buentello.
“We are the seventh-largest Hispanic business in the U.S., and our revenues of $296.2 million last year are a store record after 38 years in business,” he says. “Being a Hispanic dealer that's No.1 in the U.S. is something we're very proud of. I've been at Ancira's used-car manager for 10 years and it's been very satisfying to see us climb to the top of the ladder.”
Each of Ancira's 10 dealerships in south-central Texas has its own used-car department.
To buttress used-car sales in Grand Blanc, a suburb of the venerable auto-making city of Flint, MI, the Serra group operates one of the largest used-car centers of any member of the Ward's 500.
Serra's attractive used-car building is comparable to the showrooms of Serra's Buick, Cadillac, Chevrolet, Kia, Nissan and GMC brands.
Thirty-two employees work at the used-car facility. Much of the used-car stock comes from off-lease units of the Serra group's six brands, as well as auctions, Rykulski says.
“Having a multiple choice of new-car franchises keeps us supplied with enough used units to keep used stocks up, but definitely we could use more,” he says. “What's true now is that new cars are better than ever, and used cars are in demand as much as new, leaving us without adequate inventories to meet demand from lower-income subprime customers.”
C&O General Manager Herman Murray saw his used-car sales jump 17% through July from a year ago and has set his sights on a 27% boost in 2011.
“We operate with a central used-car lot surrounded by showrooms of our five new-car brands,” he says. “My office is right in the middle, and we keep growing with print-only advertising that reaches all over West Virginia.”
C&O (a name that originally stood for Chevrolet and Oldsmobile) has kept the same customers for as long as Murray has been its general manager, 40 years, he says. “What's more, we have 92 employees, most of them taking care of customers and their families for those years,” he says. “We have stayed West Virginia's top dealer for most of those years. There's no substitute for owner and employee loyalty.”