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Used cars about to get pricier, more scarce, dealers say

By: BILL MCKEOWN
September 17, 2009
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photo - Scott Henshaw, with Mountain View Motors, normally buys 6-7 cars at auction for the dealership, but recently only bought three and for more money than he wanted to spend.  Many of his kind of cars were apparently traded in in the cash for clunkers progra Photo by Kevin Kreck, The Gazette
Scott Henshaw, with Mountain View Motors, normally buys 6-7 cars at auction for the dealership, but recently only bought three and for more money than he wanted to spend. Many of his kind of cars were apparently traded in in the cash for clunkers progra Photo by Kevin Kreck, The Gazette 

Several car dealers in Colorado Springs are reporting sharp price hikes and a drop in availability of affordable used cars on the wholesale market in the wake of the federal government’s Cash for Clunkers program and the financial turmoil in the new-car industry.

The dealers said the effects are — or will soon — be visible on a car lot near you, in the form of slimmer selections and higher prices.

One dealer said every late-model used vehicle he’s seen lately on the wholesale market is $2,000 to $3,000 higher than it would have been a month ago.

The Cash for Clunkers program paid $2.87 billion to scrap 690,114 gas-guzzling cars and trucks, according to the latest statistics. The number of cars turned in on new car trades in Colorado was not disclosed, but the feds spent $37.6 million in the state. Each trade-in was worth either $3,500 or $4,500, so if those rebates are averaged out, that suggests about 9,400 used cars were taken off Colorado roads last month. Some of those presumably would have gone to the used car market if the program hadn’t existed.

In addition, the program came at a time when many new-car dealers were beefing up their used-car stock because of slow new-vehicle sales. At the same time, some dealers who lost their factory franchises have been converting to used-car shops, and they’ve been scouring the country for good used vehicles for their lots.

All that, the dealers said, means cars in every price category are getting scarce and pricey.
Mike Bonicelli of Nevada Auto Sales, said his sales have been very good lately. Partly, that’s because he’s been able to keep a good selection on the lot. But it’s taken effort: He has a buyer snapping up vehicles in Salt Lake City, Kansas City and  Missouri and trucking them back to his Nevada Avenue business, which specializes in mid-priced used vehicles.

Bonicelli said a couple local used-car dealers “flat went out of business” recently because they couldn’t find enough good used cars.

Also, he said, wholesale prices have jumped so high so fast they have outpaced the wholesale value listed in pricing books used by banks and credit unions, which finance cars at the wholesale price. That means consumers must dig deeper for down payments to cover the difference between outdated “Blue Book” wholesale pricing and retail. If consumers are credit-worthy and have an understanding lender, they might be able to extend the life of the loan to cover the additional cost, but that means far higher interest costs.

Krikor Yeurdjian is dealer consignment manager for Adesa Auto Auction in Fountain, which is part of a nationwide auction house. Yeurdjian said he began to notice a shortage of affordable used cars coming through his auction house more than a year ago, when the economy took a breathtaking fall, unemployment rose and job security vanished. He said many people apparently decided then to keep driving their older, often paid-for vehicles.
“We’ve seen a dramatic decrease (in affordable used cars) at auction and on car lots,” Yeurdjian said. “However, when Cash for Clunkers came out, it hurt us even more.”

 Mountain View Motors on 8th Street deals mostly in cars $7,000 or less with mileage in the 70,000- to 100,000-mile range. Co-owner Scott Henshaw said he and his partner got a rude surprise Tuesday when they attended an auto auction in Denver.

“It was weird,” he said. “It was the 59th anniversary of the auction, and we were excited. We thought we’d see a lot of cars. All there was was a lot of people.

“We wanted six or seven cars,” Henshaw said. “We walked out with three – and we probably paid too much for every one of them.

“It was the first time I’d seen such a shortage. I was like, wow.”

The shortage and higher prices apparently aren’t restricted to the low- and mid-priced categories. J.R. Hayes, owner of Hayes Motor Co. on Walnut Street, said he deals mostly in one- and two-year-old vehicles. Three weeks ago, he noticed a sudden and dramatic spike in wholesale prices.

“Everything is about $2,000 to $3,000 higher,” he said. “A $15,000  Jeep is all of a sudden bringing $18,000. They’re bringing more (on the wholesale level) than I hoped to sell them for.”

The dealers aren’t certain when the situation will ease. Yeurdjian said newer rental and lease-return vehicles normally come on the market in the fall, and that might help feed the appetite of new-car dealers and those who specialize in late-model vehicles.

He said hopes he’s wrong, but he also suspects a certain percentage of new cars sold through Cash for Clunkers will be in auction houses in the coming months, after being repossessed from owners who can’t afford new car payments and higher insurance rates.

Bonicelli, though, thinks it could be 18 months before supply meets demand and prices and availability level out.
Henshaw of Mountain View said, “We haven’t got to the point where we flat out can’t buy cars.”
But if that occurs, he said, he may have to mark up the prices of cars he does get  and, like Bonicelli, go out of state to bigger markets to find stock for his lot.

Hayes said he can’t predict when the market will stabilize. All he knows is it better be quick.

“I can’t go on like this,” said Hayes, whose grandfather started the company in 1938 by selling cars from the side of his gas station, Terrible Terry’s Conoco.

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