A Rosy Used-Car Sales Outlook? Not Necessarily, Independent Dealers Say | Auto Finance News | Auto Finance News

A Rosy Used-Car Sales Outlook? Not Necessarily, Independent Dealers Say

© Can Stock Photo / Pmariann

Looking back at the year that just closed, the car sales environment was generally positive. Although the U.S. auto industry’s seven-year run of increasing sales came to an end, the overall sentiment is cautiously optimistic for 2018. However, a closer review of this past year’s data shows a mixed bag on the used-car front, and that not everyone has benefited. Recent research reflects a trend seen throughout 2017 — namely, a fundamental divergence between franchise and independent dealers when it comes to the 2018 outlook.

The most recent data from Cox Automotive’s Dealer Sentiment Index (DSI) shows that independent dealers feel more challenged in the current period and are less bullish for the coming quarter than their franchise peers. The DSI report also found that independent dealers rated the current used-sales environment a full 16 points lower than their franchise counterparts (on a scale of 1 to 100). That significant perception divergence when it comes to the used-car sales environment clearly indicates something may be amiss for independents. While a variety of factors impact that perception, research suggests there are three key areas of concern that may be leading to sluggish results for independents and subsequently dampening their enthusiasm for 2018.

Credit Concerns

The profile of an independent dealer’s clients tends to skew more heavily to subprime consumers, with nearly 60% of a typical independent dealer’s unique customers in this category. This presents inherent challenges. For instance, these shoppers were the ones most impacted when lenders tightened their credit policies in an effort to stem rising delinquencies and higher losses. By raising the bar on the credit score standards to qualify for a loan, lenders stunt the flow of prospective buyers in these lower credit tiers. The fourth quarter DSI found that “ability to get consumers financed” was the second most prominent concern for independent dealers, cited by 39%.

At the same time, it can be hard for independent dealers to get competitive financing for the prime and super-prime consumers. This lack of competitiveness is further complicated when an independent dealer has a fleet of newer used cars that are more expensive and less affordable for those in lower credit tiers, leaving independents caught in the middle. The net result is that independents face a tougher path to loan approval.

Independents’ Inventory Limitations

Independent dealers, particularly smaller ones, have a sweet spot with older used vehicles — cars broadly falling into an age range beyond four years from the manufacture date. This has a downside relative to what is currently available to sell — while the market is booming for used vehicles that are four years older or less, the next band of five- to nine-year-old vehicles is limited due to the impact of the 2008 recession, which saw OEMs produce 20 million fewer vehicles relative to the current zero- to four-age-range supply.

The result is that many independent dealers had to go “upstream” and acquire newer used vehicles to sell since the five- to nine-year-old is so limited. This makes obtaining attractive, affordable financing more difficult for their consumers since the vehicles are more expensive.

Lending data shows that in 2017, franchise dealers submitted nearly 75% of their unique applications in the zero- to four-vehicle-age-range. This contrasts with the more balanced ratio for independents, who registered only 50 % in the zero- to four-age-range and the remaining 50% split across five- to eight-years-and-older ranges.

Continued on Page 2

  Like This Post

Continue Reading:

Pages: 1 2

Sign Up Email List