Big 3 bullish on selling used cars to raise profits
10-19-2003, 04:47 PM
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Big 3 bullish on selling used cars to raise profits
Big 3 bullish on selling used cars to raise profits
By Jeff Green / Bloomberg News
DaimlerChrysler AG car auctioneer John Larkin is having a good day at the Indianapolis lot where he works. He just sold a 2000 Dodge Durango returned from a lease for 15 percent more than he expected.
To get that, he had to cart it 705 miles from New York to Indiana, where a DaimlerChrysler computer program showed the silver, four-wheel-drive model would fetch enough to make the hauling costs pay off. The Durango was one of 22,052 autos turned in at the end of leases that the carmaker shipped to a different part of the United States this year through July -- just to get 4 percent more from buyers on average than at local lots.
"Cars do better when they're distributed more evenly," Larkin said. "It helps the net price."
DaimlerChrysler, General Motors Corp. and Ford Motor Co. are trying to collect more for repossessed and returned-from-lease autos because U.S. automakers' profit margins are shrinking because of no-interest loans and other discounts.
Ford and GM increased loan loss reserves for this year by $1 billion because of lower car-resale revenue. Selling cars returned by rental companies for less than automakers expected contributed to a $1.1 billion second-quarter loss for DaimlerChrysler's U.S. unit.
U.S. automakers have themselves to blame: the companies are lowering resale values by discounting new cars to try to boost sales. Every $1 an automaker spends on rebates and low-interest loans to lure a new-car buyer lops about 80 cents off the resale price a year later, said Bob Kurilko, a vice president at vehicle- price tracker Edmunds.com.
GM, Ford and Chrysler discounts rose 34 percent to $4,258 per vehicle on average in the first nine months of this year from $3,166 in 2001, CNW Marketing Research said. At the same time, Toyota Motor Co.p., Honda Motor Co. and Nissan Motor Co. incentives climbed 11 percent to $1,833 from $1,648.
"We're talking about big bucks here," Kurilko said. "If you don't control the value of a vehicle, if it's depreciated more than you thought when you want to sell it, ouch."
GM, Ford, and Chrysler are going to greater lengths than their Asian rivals to curtail used-car losses because U.S. car models retain less value over time. U.S. automakers' models fetch about 39 percent of their original price after one year, less than the 50 percent for a Honda and 47 percent for non-U.S. vehicles, according to Automotive Lease Guide, which estimates values of used cars returned after leases.
"More Honda and Toyota dealers are willing to keep vehicles that are coming back off lease to sell themselves," said CNW President Art Spinella.
About 17 percent of the 16.5 million new cars and trucks produced in the United States annually year are leased and another 20 percent are sold to fleet customers such as car-rental companies. Automakers set prices on new cars leased or sold to rental companies based on estimated resale value, Kurilko said. The returned cars join the 30 million used vehicles sold at U.S. dealerships each year.
Chrysler is trying to reduce losses from resold models by 25 percent, said Eckart Klumpp, who oversees used-car marketing for DaimlerChrysler's North American finance unit. He wouldn't specify the losses on resold models.
One method of boosting used-car prices is extending leases. Chrysler and Mercedes-Benz units let owners turn in their leased convertibles in time for those models to go on sale from late March through late June, when they are in most demand.
Like DaimlerChrysler, GM and Ford are moving autos around the United States and offering enticements for used cars, such as extended warranties. GM added pinstripes, more expensive rims and other improvements to make used cars more appealing, said Jeff Heichel, who coordinates the automaker's sale of returned cars and trucks.
"If we're going to sell 100 Sunfires, we don't want them all to look the same," he said. "We might spend $2,000 to fix one up and then add some spoilers or nicer wheels to some of the others."
The discounts on new cars helped automakers by reducing the supply of used cars. More customers switched to buying new cars from leasing because interest-free loans made some monthly purchase payments lower than lease payments. Customers will turn in 2.9 million leased vehicles this year and 2.6 million in 2004, down from 3.1 million last year, CNW estimates.
Rental-car companies and other large-scale buyers will return about 1.25 million used models to automakers next year, down from 1.3 million this year, CNW said.
Automakers have started making loans with terms as long as 72, 84 and 96 months to lure buyers, a move that may have the unintended consequence of reducing the supply of used cars and boosting values, Ford sales analyst George Pipas said.
"You can move cars around, you can move them to Mars if you want, and it's still only going to make so much difference," Pipas said.
U.S. used-car sales have risen since June, said Tom Kontos, chief economist at Allete Inc.'s Adesa Corp., North America's second-largest used-car auction company after closely held Cox Enterprises Inc.'s Manheim Auctions. Used-car prices, at $10,387 on average, are still less than half the $23,210 cost of a new car and below the historical average of 60 percent, he said.
Prices for used cars may rise further next year as consumers who used the discounts to buy more-expensive cars and trucks turn in those models, boosting the average value, Kontos said.
For U.S. automakers, losses from lower used-car values may not be the biggest cause for concern, said Sasha Kamper, who helps oversee $65 billion in fixed-income assets at Principal Life Insurance Co.
"A customer's perception of quality and loyalty to the brand isn't likely to be very good once they go to trade the car in and see the disappearing value," she said. "Those buyers might not come back."
By Jeff Green / Bloomberg News
DaimlerChrysler AG car auctioneer John Larkin is having a good day at the Indianapolis lot where he works. He just sold a 2000 Dodge Durango returned from a lease for 15 percent more than he expected.
To get that, he had to cart it 705 miles from New York to Indiana, where a DaimlerChrysler computer program showed the silver, four-wheel-drive model would fetch enough to make the hauling costs pay off. The Durango was one of 22,052 autos turned in at the end of leases that the carmaker shipped to a different part of the United States this year through July -- just to get 4 percent more from buyers on average than at local lots.
"Cars do better when they're distributed more evenly," Larkin said. "It helps the net price."
DaimlerChrysler, General Motors Corp. and Ford Motor Co. are trying to collect more for repossessed and returned-from-lease autos because U.S. automakers' profit margins are shrinking because of no-interest loans and other discounts.
Ford and GM increased loan loss reserves for this year by $1 billion because of lower car-resale revenue. Selling cars returned by rental companies for less than automakers expected contributed to a $1.1 billion second-quarter loss for DaimlerChrysler's U.S. unit.
U.S. automakers have themselves to blame: the companies are lowering resale values by discounting new cars to try to boost sales. Every $1 an automaker spends on rebates and low-interest loans to lure a new-car buyer lops about 80 cents off the resale price a year later, said Bob Kurilko, a vice president at vehicle- price tracker Edmunds.com.
GM, Ford and Chrysler discounts rose 34 percent to $4,258 per vehicle on average in the first nine months of this year from $3,166 in 2001, CNW Marketing Research said. At the same time, Toyota Motor Co.p., Honda Motor Co. and Nissan Motor Co. incentives climbed 11 percent to $1,833 from $1,648.
"We're talking about big bucks here," Kurilko said. "If you don't control the value of a vehicle, if it's depreciated more than you thought when you want to sell it, ouch."
GM, Ford, and Chrysler are going to greater lengths than their Asian rivals to curtail used-car losses because U.S. car models retain less value over time. U.S. automakers' models fetch about 39 percent of their original price after one year, less than the 50 percent for a Honda and 47 percent for non-U.S. vehicles, according to Automotive Lease Guide, which estimates values of used cars returned after leases.
"More Honda and Toyota dealers are willing to keep vehicles that are coming back off lease to sell themselves," said CNW President Art Spinella.
About 17 percent of the 16.5 million new cars and trucks produced in the United States annually year are leased and another 20 percent are sold to fleet customers such as car-rental companies. Automakers set prices on new cars leased or sold to rental companies based on estimated resale value, Kurilko said. The returned cars join the 30 million used vehicles sold at U.S. dealerships each year.
Chrysler is trying to reduce losses from resold models by 25 percent, said Eckart Klumpp, who oversees used-car marketing for DaimlerChrysler's North American finance unit. He wouldn't specify the losses on resold models.
One method of boosting used-car prices is extending leases. Chrysler and Mercedes-Benz units let owners turn in their leased convertibles in time for those models to go on sale from late March through late June, when they are in most demand.
Like DaimlerChrysler, GM and Ford are moving autos around the United States and offering enticements for used cars, such as extended warranties. GM added pinstripes, more expensive rims and other improvements to make used cars more appealing, said Jeff Heichel, who coordinates the automaker's sale of returned cars and trucks.
"If we're going to sell 100 Sunfires, we don't want them all to look the same," he said. "We might spend $2,000 to fix one up and then add some spoilers or nicer wheels to some of the others."
The discounts on new cars helped automakers by reducing the supply of used cars. More customers switched to buying new cars from leasing because interest-free loans made some monthly purchase payments lower than lease payments. Customers will turn in 2.9 million leased vehicles this year and 2.6 million in 2004, down from 3.1 million last year, CNW estimates.
Rental-car companies and other large-scale buyers will return about 1.25 million used models to automakers next year, down from 1.3 million this year, CNW said.
Automakers have started making loans with terms as long as 72, 84 and 96 months to lure buyers, a move that may have the unintended consequence of reducing the supply of used cars and boosting values, Ford sales analyst George Pipas said.
"You can move cars around, you can move them to Mars if you want, and it's still only going to make so much difference," Pipas said.
U.S. used-car sales have risen since June, said Tom Kontos, chief economist at Allete Inc.'s Adesa Corp., North America's second-largest used-car auction company after closely held Cox Enterprises Inc.'s Manheim Auctions. Used-car prices, at $10,387 on average, are still less than half the $23,210 cost of a new car and below the historical average of 60 percent, he said.
Prices for used cars may rise further next year as consumers who used the discounts to buy more-expensive cars and trucks turn in those models, boosting the average value, Kontos said.
For U.S. automakers, losses from lower used-car values may not be the biggest cause for concern, said Sasha Kamper, who helps oversee $65 billion in fixed-income assets at Principal Life Insurance Co.
"A customer's perception of quality and loyalty to the brand isn't likely to be very good once they go to trade the car in and see the disappearing value," she said. "Those buyers might not come back."
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