Manheim, Auctions, & Buying Vol: The Current State Of The Used Car Market Skyrocketed

[mvpof2011]

I have gone through these posts and looked at Manheim and cant see how anyone is making money at this? The prices just don't seem like they are that much lower than retail and if people are flipping cars they are not making much and do put out $28K or $30K to make $500-$1000 at best just does not seem realistic? Is anyone making money at this? I have been told that so many people have auction licenses now and are buying up everything which is driving the prices way up which was not the case many years ago. Is this the case? Example like a 05 C230 with 50k miles in Dec 2008 you could buy for $10500 now the same car is selling for $13000 and its 2 years later. Then you have 04-05 E55 AMG selling more than CL55 AMG and S55 AMG. The used car value has went up. I just dont understand how people are making money and nevertheless buyers getting a good deal on a used car.

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[irishattorney]

I do not know what the deal is with the auctions. Maybe like new cars there is a rebate under the table back to buyer.

Looking at Kelley blue book those prices seem inflated as well.

I have seen many cars for sale for over a year on craigslist and other places because of buyers wanting more than others are selling.

The cars that are actually selling on craigslist and Ebay go for less.There just not many real buyers out there willing to buy a 5 plus year old car that may be out of warranty and that is still more than most brand new cars.

[black-clk500]

Used car dealers sell financing and warranties to hose you--plus if you're trading in a car they rape you there too!
I'm not a car dealer, but that's how I'd make money on these cars

Also, don't forget they often put some lipstick on these cars and fix small stuff and charge more.
Think of it this way, if they can make a 10-15% profit (return) on their investment in 6 months or less I would say that's quite a better investment than most things out there right now.
And I would say they make more than this on average, so that's why they can buy these cars at these prices and used car prices have increased over the past few years so maybe KBB just ins't keeping pace!

Plus a lot of dealers have tire shops, repair shops, etc these parts of the business probably pay the overhead for the whole setup and it provides cash flow as well--maybe I should open a car dealership

[allenjdmb]

to stay out of this, but.....as an honest guy in the industry, and a lawyer who represents a lot of them.....
10-15% profit? I haven't made a 10-15% profit on an expensive car maybe 5 times in the last 10 years. Big city car dealers? Possible, as they ask for stupid grosses and hope that someone will pay them.
But for those of us who have struggle to buy quality cars, that is simply inaccurate. And BTW, exactly how much interest do you think accrues in the 6 months that we would hold a particular car? Reckon that would cut into the profit? Rebates at auctions? Yeah, right. They are one of the few people in the industry that really is making money. The power in the auction industry is owned by Cox Media--think they give a flip about anyone else?

The fact is, this is no place for the weak of heart, or the uninitiated. This is serious business, and you can lose every penny you have and more pretty quickly. It's very, very tough for an honest guy to do business legitimately and stay in business. It takes LOTS of capital, usually borrowed, to make very little money.
Sorry, I'm through now. I'll hushup.

[black-clk500]

When I mentioned the 10-15% figure I was considering the total amount for a given transaction (ie financing, warranty, gross profit on the sale, etc.)
If the dealer can't make this on average for a transaction than they should reevaluate their "selling ability" and consider washing cars for a living instead.
We can all admit that the real money making is not in the sale of the car itself, it's all of the add ons, financing, etc. and maintenance down the line.

Now if you're just Joe Blow car dealer and try to survive only on what you make from selling the car alone, I would suggest another line of work or a bigger scope of operations.

I own and operate a successful construction company that has been established for over 30 years and tens of millions in sales--I know a few things about running a successful company and the "real dealers" in the car biz I know are doing quite well for themselves, like any business there are degrees of success so it just depends who we're talking about.

My expanded .02

[NEMES1S]

I have been selling cars for three years, and I was involved in running auctions cars for a bit too, never seen 15% profit on cars from auction, and most that end up at auction are either off lease or coudn't sell at a dealership, they aren't always the cleanest specimen of vehicle, but there are exceptions. My car was a lease car, went to auction, the dealership I bought it from had it for a year and the owner drove it and it has needed a ton of tlc since I got it.

I guess I should mention I work at a dealership in the midwest and we don't see high end cars roll through the auction lanes much, and most of the stuff we see went to auction for a reason, but I did go to Manheim PA and Manheim Atlanta where there were some nicer things going through. The car business is a challenging one and I don't think I could run a dealership at this point, but I have also seen you can make 6 figures and not have a college degree, but the cars I have made the most on were clean local trades with good service history. When people buy nice cars they buy pedigree, they want a local car that was well maintained, not some auction piece from a thousand miles away.

[alx]

Originally Posted by allenjdmb

to stay out of this, but.....as an honest guy in the industry, and a lawyer who represents a lot of them.....
10-15% profit? I haven't made a 10-15% profit on an expensive car maybe 5 times in the last 10 years. Big city car dealers? Possible, as they ask for stupid grosses and hope that someone will pay them.
But for those of us who have struggle to buy quality cars, that is simply inaccurate. And BTW, exactly how much interest do you think accrues in the 6 months that we would hold a particular car? Reckon that would cut into the profit? Rebates at auctions? Yeah, right. They are one of the few people in the industry that really is making money. The power in the auction industry is owned by Cox Media--think they give a flip about anyone else?

The fact is, this is no place for the weak of heart, or the uninitiated. This is serious business, and you can lose every penny you have and more pretty quickly. It's very, very tough for an honest guy to do business legitimately and stay in business. It takes LOTS of capital, usually borrowed, to make very little money.
Sorry, I'm through now. I'll hushup.

nicely put and pretty accurate.

the only true profit a dealer has nowadays is the doc fee. funny as it sounds. and sad.

[NCE500]

The biggest challenge with used car quality and wholesale pricing is that since the latter half of 2008 new car sales in the US have plummeted from 17 Mil per year in 2007 down to 10 - 11 Mil in 2009 and 2010.

The drop in new cars sales translates to proportionately fewer trade ins. New car franchises are understandibly keeping the good trade ins as they are selling much better that new cars, which results in less supply at the auctions. Cars at auctions today are generally "rougher", i.e. higher miles and most have some issue or another which requires repair and $$ to make a car retail ready. There are still good auction cars, but they are generally bringing premium $$.

Used car retail sales, both at Franchise stores and Independent dealers, are however booming, at least in my part of the country. Consumers are not comfortable absorbing the 1st/2nd year depreciation hit in the current economy, and the subsidized leases for premium brands (i.e. BMW, Mercedes), which drove a lot of sales in recent years, are mostly gone as the manufacturers lost $ Millions on miscalculated residuals.

Hence dealer and consumer demand for good used cars is as high as it's ever been. In other words, supply is down and demand is up. That means prices, wholesale and retail for used cars are rising, as has been the case over the past Summer, and that is still happening.

IMO this trend will continue, and may even get worse until new car sales recover to better numbers which will bring more trade ins (supply) to the market.

Bottom line, if you see a good used car, compromise a little more on color and equipment, and be prepared to pay up a little for it.

Lets also hope that in 2011 new car sales start to meaningfully recover.

[alx]

Originally Posted by NCE500

The biggest challenge ...

some valid points too..

however, the outcome is not quite as you depict it.

what i see (and i deal with many dealers) is that all of them are stuck upside down with expensive inventory (unless local tradeins) that they own for too much.

the real problem is that people do not have money to buy cars. demand is down despite limited supply. as a result dealers sit 90-180 days on inventory and then sell at a great loss.

so, true- inventory is expensive, but demand is severely down and prices as a result are overall depressed too despite of the limited inventory.

bottom line is that the situation is unsustainable. it will sort out in time as lots of weaker players will get out of the business. currently only dealers with well-established service depts survive as service is the only profit center right now.

things will balance out eventually

my 2 cents

[NEMES1S]

This was my best year in sales, and our stores second best since it opened 7 years ago, so I'm not sure, I think it is regional. in Lincoln, NE we have a large number of government jobs and agriculture that have kept everything decent in the last few years, but I do feel bad for places that got hit hard with the economy issues

[88cashbuyer]

anyone got access to Manheim highliner auction upcoming inventory in Las Vegas. and previous price list.

[Future MDPilot]

I don't know if anyone mentioned the reason why the prices are like this, so I thought I may as well in one word; JAPAN.

You guys haven't seen 10-15% profit from a flip...? Maybe it's because I buy cars from Adesa

[roseann]

Look on used car websites and you begin to notice a trend. There is a shortage in the number of used cars on the market which has led to dramatic price hikes. In fact, the price of a used car has increased by a colossal 30% over the past year. This change in the market has occurred because of the government-funded Scrappage Scheme.In an effort to kick-start the failing new car market the government decided to inject some much needed funds into this industry The Scrappage Scheme got underway in May and has been since hailed as a success.