Secondhand in vogue, new-car dealers find

January 03, 1995|By Ted Shelsby | Ted Shelsby,Sun Staff Writer

The auto industry closed the books on a good year, but it would have been a banner one if manufacturers had only figured out how to produce a 2-year-old car with 25,000 miles on the odometer, selling for $12,000.

Used cars -- they're the hottest thing in the industry.

It is estimated that dealers across the country will sell twice as many secondhand cars this year as new models. And for the first time since the automobile replaced the horse and buggy, franchise new-car dealers are making more profit from the sale of used cars than new.

According to the National Automobile Dealers Association, the average gross profit on a new-car sale is $1,229, or $21 less than from the sale of a used car. In 1993, the average dealer gross was $93 more from the sale of a new car compared to the sale of a used vehicle.

The gross profit, explained Ted Orme, a spokesman for the McLean, Va.-based dealers trade group, does not reflect the total cost of selling a vehicle. Often, he said, dealers lose money on new-car sales once they subtract such overhead costs as financing and vehicle preparation.

New car dealers will sell about 17 million previously owned cars this year, compared to about 15.2 million to 15.4 million new ones, Mr. Orme said.

In Maryland, dealers sold 474,210 used vehicles during the first 11 months of 1994 -- 46.2 percent more than new cars and trucks -- according to the State Motor Vehicle Administration.

Those oldies but goodies have been profitable for many Maryland dealers, according to Alfred Shockley, the head of Shockley Honda in Frederick and president of the Maryland New Car and Truck Dealers Association.

"It's my guess," Mr. Shockley said, "that the average new-car dealer is losing $300 on every new car they sell because of competitive pressures." By comparison, he said, dealers are making a profit of 3 percent to 5 percent on each used car sold.

Jack Leonard of Towson said he's glad he bought used rather than new when he recently purchased a 1993 Mustang convertible with all the options he wanted.

"I paid less than $17,000," he said, of the Mustang that had been driven 21,000 miles. "New, this car would have cost me about $22,000. That was too much money."

Mr. Leonard said what many dealers are beginning to admit -- that new cars are too expensive.

"We see a lot of customers trying to stay in the $10,000 to $12,000 price range for cars with the goodies they want on them, and the only way of doing that is with a 2- to 3-year-old vehicle," said Joseph B. Aiello, president of JBA Chevrolet, Geo and Mitsubishi in Glen Burnie.

Mr. Aiello said a shopper can expect to pay about $9,500 for a 2-year-old midsize sedan with 30,000 miles. New, he said, the same car might cost $16,000 to $17,000.

Saving money is a factor in the rise of used car sales, but it's not the only force driving the market. Auto analysts say the consumer's attitude toward used cars is changing, too.

Maureen Greene, an economist with the Bureau of Labor Statistics office in Philadelphia, said that a 1993 survey of consumer spending showed that only people earning $40,000 a year or more spend more money on new cars than used.

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