Almost half of consumers would opt for a used car if they had only $15,000 to purchase a vehicle.
That startling result of a study by Dohring Co. Inc. should further shake already rattled car dealers on the heels of an invasion of the used-car market by large, independent superstores. Although still in formative stages, this intrusion promises to change the used-car landscape.
Long the forgotten stepchildren of the auto industry, the used-car folks move about 35 million vehicles annually, generating some $175 billion in sales. Half of those transactions take place at new-car dealerships.
What's attracting newcomers the used-car game? For one thing, they've spotted a vacuum: There is no national used-car chain.
Furthermore, the action's getting hotter as new-car prices climb ever higher. And then there's the longstanding stereotype of the used car salesman who (fairly or not) is not to be trusted.
All of these factors leave the market ripe for those with deep pockets who vow to treat customers nicely and sell them what they want.
Into the void steps Circuit City, the Richmond, Va-based electronic equipment retailer that launched Carmax used-car brand stores two years ago. It has four sites in the Southeast with capacity for 500 to 1,200 vehicles, and plans to begin a national push this year.
Some think that expansion, revealed in January, was prodded by AutoNation USA, a recently formed coalition of H. Wayne Huizenga, founder of Blockbuster Video stores, and Jim Moran, legendary billionaire auto dealer.
The pair plan to open two super-sites in South Florida this year, and the name AutoNation USA obviously suggests a national scope.
Although auto analysts think the birth of used-car chains is significant, and new car dealers are nervous about them, manufacturers have been reserved in their comments, especially executives at General Motors Corp. and Ford Motor Co.
GM execs publicly and privately say that used-car superstores can't survive, and that they are ready to take them on this year with their certified used-car programs. Ross Roberts, vice president and general manager of Ford Div., says the super used-car stores aren't doing anything that his dealers can't or are doing. But Mark Thimmig, an auto analyst at Coopers and Lybrand Consulting, says comments like that are "political statements for the dealer body."
Here's the deal: In general, superstores offer a huge selection of low-mileage, nearly new used cars--less than three years old and with no more than 50,000 miles (80,000 km) on their odometers. There's no-haggle pricing and no pressure from salaried sales staffs. Interactive computers allow customers to review inventory themselves and pick what they want.
This consumer-friendly approach gives Carmax unbelievable customer satisfaction numbers. A survey last year found that 99% of buyers would recommend Carmax to their friends. Even 93% of shoppers who perused and didn't buy would recommend Carmax. Not only do shoppers say they would recommend Carmax to their friends, they do. The survey found that 34% of Carmax customers come from recommendations or referrals.
Chrysler Corp. in late 1995 sold a franchise to Carmax to sell new Jeep, Eagle, Chrysler and Plymouth models. Although the franchise is exclusive to Carmax's Norcross, GA, site, the superstore will get access to private, dealers-only used-car auctions. That's another stream from which Carmax can stock all of its superstores. Indeed, the war may well be won by who controls the flow of good used cars. Right now the automakers and their dealers have overwhelming firepower in this regard.
Chrysler has plans for more new-car franchises at retail outlets. And GM stopped short of saying it wouldn't give a new-car franchise to a superstore. None of this is good news for car dealers, and there's more glumness ahead.
Michigan-based CarChoice says it will open a 1,000-vehicle used-car superstore next month in Lewisville, TX. It promises prices below market value, and Carchoice will have blue books on site for shoppers to check. The company hopes to expand in the Midwest and Southwest.
Even small-town car dealers aren't safe. Hamlin, Power Reaves Ltd., an automotive marketing and training agency, started a used-car superstore in Springfield, U-, 18 months ago. Last year, HP&R had $12 million in sales and a profit of $450,000. It has recouped almost all of its original investment. President and CEO William K. Hamlin plans to open 25 outlets in small cities like Springfield, with populations of 100,000 to 200,000 people.