USED CARS: LESS VOLUME, BUT GOOD DEALER PROFITS

February 11, 2008—Although the number of used cars retailed dropped 2 percent last year, most franchised dealers earned good profits on them. In fact, the spread between new- and used-car profit was the widest ever, said Manheim chief economist Tom Webb. The stronger used-vehicle profits resulted from stable margins, faster inventory turns, higher F&I income, and better expense control.

Other findings from the economists at Manheim and Adesa:

Leasing: As expected, more vehicles came off lease last year than 2006, a trend that will continue in 2008 and 2009. But it won’t hurt wholesale prices, because leases today have less subvention than in the 1990s, Webb said. The percentage of new leases will rise this year, though the number will drop along with volume. Webb expects leasing to reach its “natural level” of 25 percent or more in 2008.

Off-rental: Rental sales fell 8 percent last year, said Adesa’s economist Tom Kontos. But he believes they will rise again, perhaps even this year. “They’ve still got to move the metal.” The decline in off-rental volume was a big reason for the 1.2 percent year-over-year increase in average wholesale prices in 2007.

Repos: Repos jumped 10 percent last year and will likely rise again in 2008, Webb said. At Adesa auctions, repos have “doubled, tripled, even quadrupled in some cases,” said president and CEO Jim Hallett.

Online sales: At Manheim, online used-vehicle transactions are edging up, from less than 10 percent a year ago to 11 percent now. About 800,000 cars were sold through online remarketing channels such as OVE.com, ATC-Onlane, and GMAC SmartAuction in 2007, with most being closed sales between automakers and their dealers.