GAINESVILLE, Ga. -

As 2013 gets underway, used-car sales are coming off of an impressive end to the year, and new-car sales are up, as well.

And though sales numbers are high and morale is up, many dealers are still concerned about how the pre-owned inventory situation will play out this year.

Used inventory has been tight for years now, as lease returns dried up and the recession forced many potential buyers to hold on to their aging units, delaying their trip to the lots.

Now, it seems dealers, buyers and auction owners, alike, might be seeing higher values and volumes in the lanes as 2013 gets under way.

Auto Remarketing reached out to dealers, industry experts and leaders as well as inventory management companies in an effort to navigate the supply environment this year and offer some insight into best practices and ways to secure the best quality used inventory.

First, National Auto Auction Association president-elect Jack Neshe and NAAA president Paul Lips joined Black Book’s Ricky Beggs during a recent “Beggs on the Used Car Market” video report and chatted about this very thing.

After years of low volume and inventory struggles. the industry is starting to pick back up, and Beggs asked the pair where they see the market going in the coming year.

In response, Lips said, “I’m excited. I think this is the first time in four to five years we can look out at the next year and see the potential for growth. With new-car sales having rebounded for about three years in a row now, leasing is picking up, and it seems credit has loosened up a little bit.”

And it seems an increase in repossessed vehicles coming back into the market may help what has been a tight inventory environment for used dealers the past few years.

“Unfortunately, delinquencies, we have heard in the news here lately, have hopped up a little bit. I think we will see some rebounds, off-lease vehicles, repos coming back in the market. So, I think in the tail end of my year (2013), we will begin to see some improvement,” Lips said.

Beggs also asked the pair how rising volumes will affect wholesale values this coming year.

Neshe said, “I think the values are going to come up. I think it is a great opportunity this upcoming year with the forecast of volumes on the rise … I think it is going to be a great opportunity for online, also. I think online is going to be as important as ever with the demand for vehicles rising.”

But Jesse Toprak, senior analyst at TrueCar.com, had a slightly different story to tell.

Although the strong used-car sales of 2012 may increase marginally in 2013, Toprak cautioned that inventory shortages may still plague dealers.

“While the used-car sales rate in 2013 is going to be higher than (2012), it is not going to see a significant increase. The reason for that is there is still going to be a supply constraint that has been experienced for the past three years and will still be a factor next year. So, we are probably going to see single-digit increases in used-car sales compared to this year, but there simply won’t be enough cars available to see a double-digit increase," Toprak said.
On the other hand, he also explained trade-ins are playing a part in pre-owned success and increasing used inventory for many dealerships.

“As new-vehicle sales rise, a lot of people trade in their used cars when they get a new car. And as people trade their cars in, the dealerships have more used cars to sell. That is a chain reaction that brings more activity to used dealerships.”

The Dealers’ Take

Dealerships that survived the years after the 2008 recession and financial crisis are used to tight inventory when it comes to securing quality used vehicles.

But these very same businesses seem to have a positive outlook on used inventory for 2013.

“We fully anticipate the used vehicle supply to increase in 2013, not only from additional lease returns, but also from trade ins generated with an increasing SAAR,” said Greg Johnson, new- and used-vehicle director at the Larry H. Miller Group.

 And stores are trying to beat the competition as lease returns and used volume in the lanes expand.

In fact, Mike Barone, the wholesale director for the Rusnak Auto Group of dealerships in California, said lease returns are crucial to his stores’ success in the used market.

When asked what strategies his dealers are utilizing to find used inventory this year, Barone said, “I know for most of our stores … we sell a lot of new cars so we have a big lease return portfolio. And so that’s obviously extremely important … No. 1 for us as a group is definitely lease returns. It would be so hard to get the cars without the portfolios that we have.”

But what about dealers whose new-car sales business doesn’t produce these coveted lease returns?

“It’s hard … if you’re not selling a lot of new cars and you don’t have a big lease return portfolio, you really do have to pound the streets. I think online is extremely important; seeking out people coming to try to sell you cars,” said Barone.

He also stressed that dealers must “think outside the box” in regards to other used inventory avenues, potentially working with the other stores that might be willing to trade.

“Some of the Honda stores or Nissan stores or Toyota stores that don’t want to keep a BMW or an Audi … those contacts are great for accommodating extra cars,” he added.

Gene Detrick, corporate used-vehicle director at Earnhardt Auto Centers, also shared that sister-store buys can cushion used inventory for dealers, as well — a strategy his stores use regularly.

“Given the overall shortage of inventory, most of our used-car managers will retain any nice trade unless they have a poor history of reselling that model,” Detrick explained.

Over at Larry H. Miller Auto Group, Johnson shared that his stores have a system set up in place to make sure each lots have the units they need.

“We have our own internal software system that allows all of our stores to view and purchase vehicles from other stores.  We call this arming, and we currently arm hundreds of vehicles monthly in order to satisfy retail customers. Additionally, we have the ability to ‘shop’ or get ‘buy bids’ from all our dealers,” Johnson said.

Auto Remarketing also asked Barone if he expects the 2013 off-lease portfolio to improve for dealers.

“With this group, yes, because we’ve increased our new-car sales every year, which in turn, obviously means there are more cars coming back to us. I know that there are a lot of dealers that really haven’t increased since 2008 and they’ve struggled, and they don’t have the same kind of cars that we do coming in. Our group has been extremely aggressive in marketing our stores and we’ve had a lot of success with that,” Barone said.

While his group expects more lease returns, other stores may not enjoy the same luxury this year.

“I know that a lot of stores were decreasing; when we were selling more new, they were selling less.”

Though dealers can, in some ways, control their own lease portfolios, off-fleet vehicles’ behavior is harder to foresee. Jack Anderson, used-vehicle director of West-Herr Automotive Group, noted the Hurricane Sandy may be to blame for rental companies holding on to vehicles a bit longer than usual.

With the impact of Hurricane Sandy in the Northeast, Anderson found that demand for rental cars is higher, so these vehicles are staying in the rental fleet — and thus, not in pool of used-car supply — longer than usual. When asked when he would expect this trend to reverse itself and provide some used supply relief, Anderson predicted it would be sometime this month or February before dealers would see any real change.

And how is his dealership group planning to weather the tight supply environment, made even more tenuous by the recent storm?

To adapt to the supply challenges, West-Herr has had to “expand our search,” he said.

For example, Anderson mentioned the group’s buyer in Florida who is sourcing used cars in the Sunshine State, “since it seems the used supply situation there is a little bit better,” far away from West Herr’s home in Western New York state.

“You just have to go further and look harder,” Anderson added.

That said, the used-vehicle director noted, there are cars out there, but the key is to find the right vehicles for your specific inventory. The 2013 supply situation will be much like that of 2012, in that it will be challenging, although there are still cars out there. It just takes some work to find them, Anderson added.

Eric Davis, used-car manager at Hare Chevrolet in Noblesville, Ind., also offered his take on the 2013 supply environment, giving some examples of challenges and opportunities dealers should take note of:

“Some challenges are navigating the ups and downs in the market. Whether it be from the natural adjustments in prices that take place throughout the year or from a disaster taking place somewhere in the country to the price of gasoline that affects used-car prices,” he said.

“The big challenge is to keep the right inventory on hand that books for our programs and turns in less than 60 days with a good return on our investment. The opportunities come at some of those same times,” Davis said.

Detrick added, “It’s obvious, buying trades from a customer continues to be the most logical way to obtain inventory — sell a car, get a car. Inventory shortages are made up by direct buys from sister stores or other dealers, direct purchases from rental companies, and auctions. To a lesser extent there is the occasional purchase from a wholesaler.”

New Inventory Management Offerings

Auto Remarketing also talked with a bevy of inventory management experts that shared some of their company’s new offerings as well as tips and strategies for used dealers in the New Year.

First, George Nenni, vice president of operations for Dominion Dealer Solutions, said the company is sticking to a few “strong themes” for 2013."

“The strong themes for our inventory tools will be around re-inventing the way dealers can interface with our tools, and the increased use of automation,” Nenni said.

He also touched on what the company will be focusing on this year, noting, “Our goal is to make revolutionary changes in the way dealers interface with our tools, including mapping and highly visual interaction. We also want to break new ground in automation to help dealers create settings, preferences, and defaults that allow expert systems to help them manage by exception versus being a slave to their online tools.”

As for new developments, another big name in the inventory world, vAuto, revealed a few changes and new offerings in its product lineup as 2012 drew to a close.

As reported by Auto Remarketing in late November, as part of a branding initiative, vAuto’s used-vehicle inventory management product suite has a new name, and the company has also rolled out a new product line of stand-alone solutions designed to help dealers tackle specific used-car tasks.

Explaining the first of the branding initiative’s two components in more detail, vAuto said its current Live Market Suite of inventory management tools will be rebranded to the Provision Suite.

vAuto has just launched its Genius Labs product line, as well, and the company emphasized Genius Labs products will be similar to AuctionGenius in that they will be stand-alone, “system-agnostic” and customizable for dealers.

Lastly, the company noted it will be enhancing its Provision Suite this year, which includes, according to vAuto founder Dale Pollak, “leveraging our unique relationships with AutoTrader.com, Kelley Blue Book and leading auctions to offer more pinpoint, market-based pricing and merchandising of used vehicles to help dealers increase sales and profitability.”

Over at Reynolds and Reynolds, vice president of product planning Jon Strawsburg shared a few offerings the company has rolled out recently, as well.

The company has added reporting capabilities in its dealer management system platforms, and launched a complete solution for used vehicle management.

“What dealers tell us is that they are looking for more insightful and more meaningful information about their business in real time. That’s what we’re providing with an all-new reporting dashboard in our DMS,” Strawsburg said. “We’ll continue adding new metrics to the dashboard, further enabling dealers to quickly access the information they want to monitor and enabling them to drill-down into the details with a click.”

Challenges & Opportunities for 2013 Inventory Searches

A country of dealers used to a tight supply environment recently braced themselves for an even more limited used inventory situation as Hurricane Sandy wrecked havoc up and down the East Coast.

And Nenni of Dominion Dealer Solutions said the storm definitely pushed wholesale prices up.

“There will definitely be challenges (acquiring inventory) in the short term, as we're already seeing climbing wholesale prices due to vehicles damaged or totaled from Hurricane Sandy,” Nenni said.

“The market will bring these values back to earth in time, thanks to the strong performance on the new-car side, but that still doesn't mean dealers shouldn't focus on creating competitive advantages through creative sourcing strategies. One of the biggest opportunities in sourcing comes from the use of Equity Mining tools. These tools allow dealers to find opportunities for sales and trades from customers in their CRM or DMS,” he further stressed, noting some tools dealers can use to alleviate supply struggles.

Pollak provided an interesting outlook on the supply environment for 2013: “The biggest challenge for dealers to acquire used vehicles is also one of their biggest opportunities.”

He further explained by sharing that while wholesale vehicles supply has been constrained in the past few years, these dynamics “have spurred some dealers to be more innovative and creative in their efforts to acquire used vehicles.”

He went on to note that he sees two distinct areas where dealers are turning the so-called “used-vehicle shortage” into an opportunity:

First: A greater emphasis on acquiring trade-ins.

“In the past, dealers might acquire 30 percent to 40 percent of their used vehicles via trade-ins. Today, the best practice benchmark is 50 percent to 60 percent as dealers recognize their current customers are driving vehicles that would be great sellers as used-vehicle inventory,” Pollak said. “They’re pitching buy-back offers to customers in their service lanes, and offering more realistic appraisals to acquire and retail these vehicles.

“Typically, the profitability potential on such trade-in units is greater for dealers because they often have a ‘one owner’ story and complete service histories to make compelling pitches to used vehicle buyers,” he added.

Next: More effective, efficient online auction acquisitions.

“A growing number of dealers are recognizing that their traditional need to ‘touch’ every used vehicle they acquire is slowing their ability to maximize the sales volume, turn rate and profitability of their used vehicle departments. These dealers are turning to new technologies, like AuctionGenius, that help them evaluate and acquire more vehicles in significantly less time via online auctions,” Pollak said.

And Strawsburg of Reynolds and Reynolds says competition may be one of dealers’ biggest concerns as inventory may remain tight this year.

“Competition from other retailers is the biggest challenge I see. If you’re content to stay on the same level with your competitors, looking at the same cars at the auction, or simply taking trade-ins, then you won’t secure the best or most profitable cars to sell. You’ll get some share of the good ones by chance (or by overpaying), but, overall, you won’t maximize the return on the investment you’ve made in the cars, the facility, or your people,” Strawsburg said.

The exec also explained the company expects dealers to focus on two strategies to find quality cars in 2013:

First, Strawsburg explained he predicts dealers will begin looking beyond their immediate local areas to find used inventory.

Second, he stressed that “savvy” dealers will utilize their own customer database and their service drive to find cars that match their inventory needs.

“This is an advantage because you acquire a desired inventory vehicle, plus you also generate a sale at the same time. It’s a smart business move that ultimately can lead to multiple benefits, including increased sales volumes, higher customer satisfaction, and customers that return to the dealership for both service work and their next vehicle purchase,” Strawsburg concluded.

Auto Remarketing Editor Joe Overby contributed to this report.