Fewer vehicles, slower economy pose challenges for used-car dealers

WILLMAR -- Fewer vehicles and a slower economy are posing challenges for used-car dealers.

Kelley Blue Book, the leading provider of new car and used-car information, predicts used-car prices are expected to remain high for the next two to three years, due to a gradual decline in new-car sales dating to 2008, as well as a drop in the number of leased cars becoming available at the end of their contract terms.

Kelley says the price of the average 1- to 3-year-old used vehicles has risen 15.8 percent per year. In 2008, the average cost of a one- to three-year-old vehicle was $15,042, but now the average is $23,353.

Also, people are holding on to their cars and trucks about a year longer than before the recession, which has created a tight supply of used vehicles, according to Kelley.

Kim Baker of Quality Auto Sales of Willmar says prices for used cars have risen because manufacturers have cut back. Also, brands such as Pontiac and Saturn are no longer made.

"It slowed down sales for a while, but they will pick back up once these manufacturers get going again and that's when prices will start to change again. They've remained strong and they'll be that way I believe for another year for sure,'' he said.

Local used car dealers say they must work harder to get a selection for their lots. One reason is that large auto auctions where dealers buy their inventory have fewer vehicles for sale.

"It has slowed us down because cars aren't as plentiful,'' says Baker. "That's a big change.''

During the past five years since Baker and Ron Payne returned to the East Highway 12 site of a former Ford dealership, the number of cars available at one auction has fallen from over 3,000 to about 1,500. Another auction that previously offered from 1,500 to 2,000 cars is down by half.

Baker and Payne also say the federal "Cash for Clunkers'' program, which made $3 billion available to people in 2009 who replaced gas-guzzling vehicles for more fuel efficient ones, destroyed many good used vehicles.

"You've got to get those on trade-ins because you can't really buy that older stuff and get anything good. A lot of those are gone,'' Payne said.

Tim Manz, president of Manz Auto Inc. of Willmar, says used cars are kind of like a commodity.

"If there's a lot of it out there, the prices are down, and when there's not a lot out there then the prices go up,'' says Manz.

"I think with the used market, too, when we had the "Cash for Clunkers,'' that took a lot of used vehicles out of the market, which made the prices go up,'' he said.

Bruce Netland, president of Midwest Motors of Willmar, says people are driving their cars longer and the mileages are going up. He said people are realizing that cars actually can go 200,000-300,000 miles.

"The reality of all this is it takes a while for things to catch up,'' Netland said. "It actually has not been bad. 2011 for us was better than 2010. Used car sales are up and down. One month in 2011 was the best month we ever had in 10 years, and the next month was the worst month we'd had in 10 years. How amazing is that?''

After 40 years in business, Netland says he's learned to not get real excited but to stay steady and continue to do what he's always done.

"I'm pretty positive about the used car business. I heard a lot of negative amongst the dealers, but some of them are just looking for the buys that they had five years ago,'' he says.

"It's not there. They're going to cost more. You have to keep your margins reasonable so that you're going to stay in business, but that just means we have to be a little more cautious and careful as to what we buy and to make sure that our customers are happy with what they get.''