Salespeople suffer in fight over used cars

DRIVEN OUT OF THE MARKET

November 26, 1991|By Ted Shelsby

As Christine Canales sees it, she's the victim of a system that has been offering car buyers great deals on nearly new cars.

Until she got the ax in June, Ms. Canales was business manager and saleswoman with Avis Rent A Car System Inc.'s used-car sales lot in Glen Burnie.

She was one of hundreds of Avis employees across the country who lost their jobs when they were caught in a feud between the nation's automakers and new-car dealers over the industry's practice of selling cars to rental fleets at 5 percent to 10 percent below the price franchised dealers paid.

Looking for ways to keep their assembly plants operating during a period of lackluster consumer demand, domestic automakers began pushing more and more cars into rental fleets they themselves own or in which they hold a minority interest.

According to Ted Orme, a spokesman for the National Automobile Dealers Association, the industry has pumped 3 million cars into the rental fleets over the past two years. In turn, the rental companies were turning over their fleets every four months, flooding the market with low-mileage used cars selling for 25 percent to 30 percent below the cost of a new car.

Franchise dealers were outraged. To appease them, Mr. Orme said, GM, Ford and Toyota agreed last summer to begin buying back the cars they sold to the rental companies. Chrysler said it would buy back 75 percent of the cars it sold to rental firms. Now the cars are sold to franchise dealers at closed auctions around the country.

This buyback program practically put Avis out of the used-car business. "We had nothing to sell," said Raymond Noble, a spokesman for Avis Rent A Car in Garden City, N.Y. Avis closed 80 of its 108 sales outlets across the country, including those in Glen Burnie and Rockville.

The manufacturers' action "created three categories of sales," said Mr. Orme: "New, used cars and nearly new cars" -- or "program cars," as they are referred to in the industry.

This proved to be a mixed blessing -- or, as Mr. Orme put it, "too much of a good thing."

"It may save the bacon during the recession, he said, "but there could be long-term damage to new-car sales."

While sales of program cars are credited with saving some dealers from bankruptcy, they have added to the woes of domestic manufacturers by luring potential new-car buyers out of the showrooms and onto the used-car lots.

"There are values out there, genuine values," Alan Abramson, president of Archway Ford on Reisterstown Road, said of the program cars.

He cited the example of a 1991 Ford Tempo in his own inventory. A new car with an assortment of options would cost about $11,000. Mr. Abramson said he could buy the same car, still under warranty, with 6,000 to 8,000 miles on the odometer, at a Ford auction for about $7,500. "We might make $500 on the sale of the new car and $1,000 [because of high demand] on the program car while the buyer is still saving $2,000.

"That's on a moderately price car," Mr. Abramson added. "On a luxury model the savings are even more significant."

Mr. Abramson said that program cars allow shoppers to buy more car for their money. "If you only have $15,000, you can't buy a fully loaded Crown Victoria, but then here comes this program car that has all the same equipment at a great price."

While there may still be some great buys on new-car dealers' used-car lots, the best buys may already be on the road.

In an attempt to woo consumers back to the new-car showroom, Mr. Orme said, manufacturers have begun extending to six months the time cars stay in the rental fleets. The strategy is to have them roll up at least 15,000 miles so they more closely resemble used cars.

As for Ms. Canales, she's back into the business of selling rental fleet cars. Earlier this month she took a job with Agency Rent-A-Car, a Solon, Ohio, company that specializes in renting cars as insurance replacements.

"Here I am," she said recently, "sitting in the same desk, in the same office as I was when I was with Avis." Avis subleased the Ritchie Highway lot to Agency, which hired Ms. Canales to run the business. There's one major difference, however; she says she is earning about half as much now as she did with Avis, when her income was about $65,000 a year.

Because its market is different, Agency keeps its cars in the fleet about two years. Most have been driven 40,000 to 50,000 miles.

"But they're cherry-picked," Ms. Canales says, using an industry term to describe best of the lot. As she speaks she sounds a lot like the saleswoman who won Avis' top selling awards.

"We get only the best cars in the fleet," she says.

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