Yesterday, I had a really eye-opening experience while visiting a dealership in a Detroit, MI suburb. While using a new tool that was just created to analyze the number and type of used vehicles being purchased in various markets, we noticed something that was fairly alarming. Specifically, we were comparing the number of used vehicles being sold over the last 45 days in the Detroit market (100 mile radius), with that sold in Shrewsbury, NJ with the same 100 mile radius. Notwithstanding the fact that Detroit’s population is two and a half times larger than Shrewsbury, NJ, there are more used vehicles being purchased in the Shrewsbury market.
I guess it’s not a surprise that the used-car market is stronger in some places than others, but I didn’t expect it to vary this much. After some discussion, the dealer and I came to two conclusions, which possibly explain the variance. First, the Detroit metro area is just a terribly depressed market and simply isn’t consuming used vehicles at the same rate as other places. Second, because of employee purchase plans, the used-car business in Detroit has trouble competing with the new-car business. In other words, you can buy a new car on an employee plan sometimes for less money than a late-model used vehicle. The bottom line conclusion is that Detroit just isn’t a very good place to make a large used-car investment. In a moment of serendipity, the dealer said to me, “You know, there’s not a single CarMax in the Detroit market.” I simply responded “Duh”.
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I have discovered the same anomaly in areas where there are many vendors to the auto industry. A 24 month SmartLease on a GTO or Yukon, with all the available X,Y,Z, plan money and rebates can add up to a $250./ mo lease. That same payment only finances about $13000. on a 60 month finance contract.
As we are engaged in pre-owned leasing we can state without doubt that the only way pre-owned leasing works is if the payment is compellingly better than a subvented lease on new.
Currently one can lease a pre-owned 2007 M35 Infiniti for about $355./mo for 39 mo. with no money down. I have reason to believe that even a subvented lease on a new 2008 would be at least $550./mo with no money down. Some people would be attracted to the $200./mo savings. After all, everyone drives a used car!
Dale,
That’s great insight about the Detroit market…interesting dynamics with regards to both the marketing struggles and opportunities for those dealers.
I always wondered about the dynamics of these employee buy plans. If the employees are buying heavily discounted new units instead of used cars, what are they doing with the last one they bought? If the market for used is depressed in Detroit, that makes their trade-ins less valuable. Are casual used sales higher in markets with higher proportions of OEM employees? Are these folks selling their pre-owned units on eBay? Anyone know?
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