Zero percent deals on new cars cut prices on flood of used autos

Keir Schlatter examines a car at A&S Auto Sales, where owner Norm Maran, right, says values have increased.

Waves of zero percent financing deals have helped rev up new-car sales for more than a year, but used-car sales have suffered. Worse, a flood of trade-ins lowered used-car prices by about 25 percent.

For example, sales at Toledo's Tom Cater Auto Sales last month were less than half what they typically would be for November, and customer traffic at times has plunged from 20 or more people daily to as few as two to three, said salesman Michael Okulski, a cousin of the owner. He was temporarily laid off last month for the first time in 18 years because of stalled sales.

“We've been very successful, but it's the worst I've ever seen right now,” Mr. Okulski said. “The problem is probably increased competition, low interest rates on new cars ... and just the general state of the economy.”

As roughly 4 million vehicles come off lease this year and new cars replace other vehicles, the average price of a used car has fallen from more than $8,000 last year to an estimated $7,800 this year, according to CNW Marketing/Research in Bandon, Ore.

Locally, some salesmen said, used-car prices are down by at least a fourth this year. A car that fetched $4,000 last year will bring less than $3,000 this year, said Norm Maran, owner of Toledo's A&S Auto Sales.

Used-car prices always are sensitive in the Midwest, and thriving new-car sales make the situation worse, said Art Spinella, general manager of CNW Marketing/Research.

Mr. Maran has responded to softness in the used-car market by increasing the value - and profit margin - of the vehicles he carries. Although his lot's sales volume is down, profits have not been affected, he said.

After zero percent financing became widespread last fall, Mr. Maran said, he started buying the higher-priced used cars that were becoming available. Although he still has cars priced at $1,000 in stock, he has more $5,000-plus models than a year ago, he said.

“I feel very comfortable with where I'm at right now,” he said.

Some franchise dealerships, such as Grogan's Towne Chrysler in Toledo, are changing their used-car inventory strategies so they don't go head to head with zero percent financing offered by their new-car departments.

Grogan's is carrying older, less expensive vehicles instead of a bevy of late-model choices in an attempt to cut the $13,000-$14,000 average price to around $10,000, said Nick Ort, the dealership's used car sales manager.

Plus, the dealership has cut its inventory volume to about 120 vehicles, or about 20 fewer than typical for this time of year, Mr. Ort said. Competition caused by zero percent financing has worsened a typically tough time of year for used-car sales, and profits have been affected too, he said.

“It's tight, especially when going into this time of year,” Mr. Ort said. “Obviously, it costs money to hold those cars on the lot.”

Not every used-car lot has had problems, though. Maumee's Stengle Auto Sales, Inc., has had one of its best years in its 45-year history. One key is keeping inventory moving so dropping values don't wreak havoc, said co-owner Michael Stengle.

“Like any business, it goes back to overhead,” he said.