Used-car superstores were going to put franchised new-car dealers out of business.
No ifs, ands or buts about it.
Franchised new-car dealers, all of whom rely on the sale of trade-ins as used cars for a significant portion of their business, were certain the end was near once superstores entered the fray.
Ain’t happened.
The grapevine has it that new-car dealers within a chip shot of a superstore are thriving.
A study released by CNW Marketing/Research of Bandon, Ore., reveals why.
CNW, which focuses on why people buy the cars they do, said its nationwide study found that the quality of 42 percent of the vehicles at used-car superstores wasn’t as good as the quality of used cars at franchised new-car dealerships.
Not hard to understand, considering most dealers don’t let loose of their best trade-ins and have held onto them even tighter since the superstores opened. That’s why some superstores, which generally wind up with the dealers’ outcasts at auction, started buying new-car dealerships to guarantee a supply of quality used cars and not dealership leftovers.
CNW also found that the average cost of repairs to bring the 58 percent of superstore cars worth fixing up to the same quality as a General Motors or Toyota factory-certified used car would be about $900. So the survey found that superstores had a little less quality and a little more price, according to Art Spinella, CNW general manager.
Much to the delight of franchised new-car dealers, the used-car superstores aren’t enjoying the success or profit they thought they would, Spinella says.
“The used-car superstores thought they were competing with mom-and-pop operations, but found they were competing with $20 million to $40 million businessmen, not a bunch of schleps,” Spinella said.
Of course, the superstores also have been hurt by depressed used-car prices. With numerous incentives on new vehicles, consumers have been purchasing them in bunches. Industry sales were at an annualized rate of 16.7 million in May, considerably higher than the usual 15 million to 15.2 million annual rate.
Superstores sell used cars. Franchised new-car dealers sell new and used cars as well as service. When used-car sales and prices are soft, franchised dealers have new cars and service to fall back on, while superstores don’t.
But there is good news for superstores, the CNW study revealed.
“A percentage of consumers believes that used-car superstores are more honest, more ethical, more trustworthy than franchised dealers,” Spinella said.
Superstores got started because consumers had grown to hate walking into a car dealership, confronting a slick-talking salesman and having to arm-wrestle him over price.
The survey would seem to indicate that when it comes to shopping for a used car, consumers will accept a slightly more beat-up car at a little higher price to avoid getting beat up at the dealership.
Sometimes, but not always, Spinella said.
New-car dealers thought superstores would take advantage of them when it came to used cars. The opposite is happening.
“Consumers are going to the superstores, getting a computer-generated printout listing all the equipment on the cars in stock and the no-haggle, take-it-or-leave-it price and then walking across the street to the franchised dealership and saying to the salesman: `Can you beat this?’ ” Spinella said.
“Dealers love it when someone walks in the door with one of those computer papers. They gobble up the sale,” he said.
“As a result, some superstores are starting to discount and not stick to the one-price, take-it-or-leave-it philosophy,” Spinella said.
“And some are offering commissions to salesmen (most offer a flat salary to avoid the salesman’s temptation to inflate the price to earn a higher commission),” he said.
Ironically, those computer-generated price quotes finding their way into new-car dealerships are helping eliminate one problem that gave the superstores access to the used-car market–haggling that led to browbeating over the price.
But rather than celebrating the superstores’ problems, franchised dealers should learn a lesson, Spinella said.
“Superstores have raised the awareness that consumers don’t want to be hassled,” he said. “This isn’t brain surgery. The consumer simply wants to be treated right and doesn’t want an aggressive salesman or confrontation.”
