More Tough Times Ahead For Car Dealerships
Stingy credit and a shortage of used cars will put a double whammy on dealers.
For automakers, 2010 should bring some stability, with total U.S. sales of about 12 million vehicles and most carmakers turning the corner to profitability.
New-car dealers, however, will go through another rough year. Lenders’ tightfistedness will make it tough for businesses and consumers to spring for a new set of wheels, despite vehicle prices being about the same as last year’s.
Toyota dealers are in for an especially tough time in light of the safety recall and halt in sales of vehicles that account for roughly two-thirds of Toyota’s U.S. sales. Dealers’ earnings will be depressed for several months.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, lenders are likely to pressure dealers to step up payments on loans for cars sitting on lots for 90 days or more. That will weaken dealers’ cash reserves, increasing the odds they’ll run out of cash and have little choice but to close shop. Some may try to sell out to another dealer but that’s a “very tough sell in this market,” says John Pico, managing partner with Advising Automobile Dealers, a dealer consultancy.
Dealers selling used cars -- usually a profit mainstay -- face their own woes.Securing supplies of late model vehicles will prove unusually tough, requiring dealers to sweeten deals on trade-ins. Used car prices are likely to climb 5% again this year.
Uncle Sam’s Cash for Clunkers program last year helped dry up supplies, even though the 750,000 cars sent to the scrap heap were mainly older cars, sport utility vehicles and pickup trucks. Moreover, rental car companies, which usually send tens of thousands of vehicles to dealers and automobile auction houses, are keeping vehicles longer, reducing supplies.
The slowly rebounding economy and persistently high unemployment rate are boosting demand for used vehicles, too. “For many consumers, the only way to buy a vehicle is to get a used one, since the amount they need to finance is less than (with) new ones, and generally the APR (annual percentage rate) interest rates are a bit lower, too,” says Tom Webb, chief economist with Manheim Consulting, a used vehicle consultancy.
For weekly updates on topics to improve your business decisionmaking, click here.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Stock Market Today: Dow Adds 654 Points as 3M Stock Explodes Higher
It was a risk-on day for stocks thanks to an upbeat inflation reading and impressive earnings from 3M and Deckers.
By Karee Venema Published
-
3M Leads Dow Stocks After Massive Earnings Beat
3M stock is headed toward its best day ever after the industrial conglomerate's impressive earnings report. Here's what you need to know.
By Joey Solitro Published
-
Astronomical AI Spending Is Causing Jitters on Wall Street
The Kiplinger Letter Amid rampant excitement over artificial intelligence, a new round of skepticism is taking hold. Here are four forecasts about the future of generative AI.
By John Miley Published
-
Car Prices Are Finally Coming Down
The Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
By David Payne Published
-
Rising Cyber Threat of AI: The Kiplinger Letter
The Kiplinger Letter Security experts warn that generative AI brings new risks with no clear defenses. With AI's rapid adoption, businesses are vulnerable.
By John Miley Published
-
Kiplinger Special: The Long-Term Future of the U.S. Economy
The Kiplinger Letter Kiplinger's report into what it will take the U.S. to maintain a healthy economic growth rate.
By David Payne Published
-
The Fight Against Cancer Enters a New Phase
The Kiplinger Letter Breakthrough treatments hold promise for patients and investors.
By Matthew Housiaux Published
-
After Decades of Promise, the Virtual Reality Era Has Finally Arrived
The Kiplinger Letter VR is a paradigm shift for consumer technology. The tech has a long road ahead, but amazing hardware already puts the huge potential on full display.
By John Miley Published
-
AI to Power the Next Generation of Robots
The Kiplinger Letter There's increasing buzz that the tech behind ChatGPT will make future industrial and humanoid robots far more capable.
By John Miley Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published