Independent used-car lots sell service

Sunday, August 30, 1998

The Cincinnati Enquirer

Used-car lot executive Mark Donnelly has seen them come and go: the customers, the rival dealers and the strategies to woo the low-end, buy-with-bad-credit consumers onto the lot.

Under the tinsel rope at Ohio Motors in Columbia Tusculum, which has been in business for four decades on Cincinnati's east side, Mr. Donnelly thinks that the latest trend in used-car sales -- megalots in suburban settings, no dickering, computerized car locators -- might be like all the rest.

He thinks that it affects independent used-car dealers closest to the megalots -- but not all.

"One guy in business for 38 years told me that he wishes one of those big national used-car chains would open up right across the street from him," Mr. Donnelly said.

"Sure, they're imposing, but when the customer sees everything that's involved, when they see people driving around in golf carts, I think the customer knows you can't do all that and not make a handy profit."

But Mr. Donnelly wants them as far away from his lot as possible. "If they moved one next door to us, I may never have another customer walk by. They'd gobble us right up."

Until now, mega-used-car dealers have focused on potential buyers of late-model used cars with low mileage in an attempt to crack the premium used-car market. That might be changing, said Brad Wernle, industry observer and staff correspondent for Automotive News.

"There is a gradual shift toward older cars with higher mileage because the existing dealer body has had an advantage in obtaining the top, late-model used cars," he said.

Established dealers had first pick because of leased cars that were returned and from trade-ins. That, in turn, cramped the supply for the mega-used-car dealers, he said. Republic Industries, parent company of Auto Nation USA, responded by embarking on a buying binge of new-car dealerships.

"They are now No. 1," Mr. Wernle said -- "the largest owner of new-car dealerships in the nation, according to Automotive News' top 100 dealer list."

As a result, some of the local car-dealer powerhouses are giving megastores greater scrutiny. For instance, Ronald G. Joseph Jr., general manager of Montgomery Chevrolet, said he took a tour one recent Saturday of used-car megalots to comparison-shop sticker price.

"They have a one-price strategy," he said. "You pay what's on the window. No negotiating. As far as we could tell, the same vehicle, the same year, model and equipment -- and they were priced higher than we had ours priced."

Has the Joseph Autogroup been hit by the arrival of the mega-used-car lots? No way.

"We are having a record used-car year," Mr. Joseph said.

Jim Donahue, vice president of corporate communications at Republic Industries, parent company of AutoNation USA, a network of 32 used-car megastores, said that while another dealer might criticize the price of a car or two, overall, posting of the price on all cars on the lot ensures value.

"We know what it says on the Internet, what the price is in all the regional directories," he said. "We are not going to price cars over the market. Consumers can decide for themselves."

Republic, besides owning the AutoNation USA in Forest Park, also owns Bob Townsend Ford and a former Driver's Mart in Deerfield Township in Warren County. It projects $13 billion in revenues from new- and used-car sales in 1998, making it the largest new- and used-car company in the nation. Sales figures for individual megastores are not available.

"The automotive retail industry is consolidating at a rather rapid rate, and that is the result of several factors," Mr. Donahue said. "The overriding factor is there are inefficiencies grown up over the decades in automotive retailing that are no longer sustainable. Consumers are too smart. The number of people offering cars for sales will continue to shrink.

"Consolidation is the overriding trend nationally. It's being played out now in Cincinnati."

For Todd Ohnmeis, manager of Miami Motors in Newtown -- a dealer that has been in business for 23 years in eastern Cincinnati -- the arrival of the super used-car lot has not hurt business.

"I can't think of one customer who has come in and told us they were going to buy from (a megadealer). People like going in and talking to a salesperson. They want one-on-one. They don't want a computer to pick out a car."

But Art Spinella, vice president and general manager of CNW Marketing - Research Co., an independent research firm based in Bandon, Ore., thinks that the tide is turning in Greater Cincinnati.

"In general, the used-car superstore has changed the face of the used-car retailing market," he said. "Initially, it had very little impact on the good, independent car lot.

"The independent tended to have an older vehicle. The superstore had a newer vehicle. But now, superstores are getting into older used cars because they can't get sufficient supply of 2- and 3-year-old cars. Now they're putting 6-year-old cars on the lot, and when you start getting into a 6-, 7- or 8-year-old vehicle, you're going to be hurting some of the best independent lots."

While the most acute impact has been felt in only the past 18 months, the long-term trend for independent dealers is down, Mr. Spinella said. In 1990, the United States had 74,500 active independent dealers. By 1997, that number had fallen to 60,500 -- a reduction of about 18 percent.

"One out of five going out of business in seven years is a sizable number," he said. "The people going out of business have tended to be the smaller lots."

In the meantime, dealers like Mr. Donnelly play the wait-and-see game -- something used-car salesmen do by nature. He sits in his small office on the lot with the sign No Finance Company Pays Us Directly . . . Instant Credit Since 1959 and wonders about the future of used-car sales.

Last week, about 50 cars left his lot, but they were bound for a salvage yard, he said, not a garage in suburbia. Those cars could not make the grade for resale, he said, because of their poor condition.

He said sales are definitely occurring at the megalots, so somebody somewhere is getting hurt. But it is not him. Ohio Motors looks for salvation in a peanut-butter-and-jelly mainstay: its body of repeat customers.

"That's what keeps you going," Mr. Donnelly said. "Believe it or not, I've had people buy 10, maybe 15, cars off me. They bring families in, and when kids are old enough, they bring them.

"But I'll tell you one thing. I wouldn't want to be a new guy in this business just starting out. It would be tough."

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