Lexington, KY - All of us drive used cars. Technically, the minute we drive off a new car lot, our vehicle becomes "previously owned." The depreciation meter starts ticking, too. So it's no surprise that during the economic slowdown of the last two and a half years, Kentuckians have searched far and wide for the best used vehicles they can afford, often trading in or selling much more expensive cars, trucks, vans and SUVs.
"We've sold fewer new cars, so we came up with a creative way to sell more used vehicles," said David Kain, general manager of Kain Ford in Versailles. "Vehicles that we used to take to auctions or sell to wholesalers we now keep and sell ourselves."
Kain Ford has a used car area it calls "Back Row Joe."
"It's a cute name and gives them a little personality," said Kain. "We put the price right on the window and don't service them or put any money into them. They're out there so customers can buy them at a really good price, way below book value."
The dealership says there's demand for used vehicles because many incomes have declined and some people need to cut back. Or some want a second cheap vehicle without high, long-term payments. "We keep 35 or 40 of these vehicles in stock," Kain noted.
Compared to some used car operations, that's a drop in the bucket.
Every Thursday night at seven sharp, KASP Auto Auction in Lexington offers 400 to 600 used vehicles for sale. It bills itself as Kentucky's largest independent auto auction.
"They're paying cash. There's no financing," said Jim Williams, KASP president. KASP requires shoppers to bring a $500 cash down payment if they want to buy and then bring cash or a cashier's check back the next day to pay off the balance.
"Our used car sales are up at least 10 or 15 percent this year," Williams explained. "Ironically, that's because new car sales are up. The more new cars they're selling, the more trade-ins they're getting. It filters down to us. As they increase, we increase. When they dry up, we dry up. It's supply and demand."
Obviously loyal to the used car industry, Williams barely hides his disdain for some new car dealers. "People get better value on used cars. But, to use the parlance of our business, franchise new car stores don't sell cars, they sell financing. As financing has gotten tougher, more people have turned to used cars. That's the best thing I can say about it."
Because of their scarcity, good used cars now cost more. Zack Sweeney, who manages used car sales at Jake Sweeney Automotive dealership in northern Kentucky, said the price rise is most noticeable on cars and trucks priced below $10,000. "That $4,000 car now costs $5,000," said Sweeney. His lot recently broke its all-time monthly sales record, selling 311 used cars, beating the old record of 252 set in 2004.
Kain notices another trend. Because of the economic slump, there are fewer new cars that can become used cars. Rental cars, purchased new by Avis, Hertz and others, are affecting the market too.
"They used to have their cars in service only a short time and had low mileage, from 10,000 to 25,000," said Kain. "But now they're putting used rental cars on the market with mileage in the upper 30s and low 40s."
Ford, which is recovering from the automotive recession better than most companies, has seen new car sales perk up, which helps future used car sales. "With new cars selling better, we're getting more trade-ins," Kain explained.
However, there's another problem with Ford. Every Ford dealer is crying for more new vehicles.
"Our new inventory is lower than it's been in five years," said Kain. "Ford factories aren't cranking them out fast enough. During slow times, Ford geared down. Now there's an uptick, but they aren't getting new vehicles to market so dealers can meet demand."
Certain used vehicles tend to sell better than others. At KASP, trucks are always popular. Small Japanese models go fast. At Kain Ford, a Ford Escape or Fusion sells quickly. "It depends on what customer preference is," said Williams. "It's all price-oriented."
Kain buys most used cars on the Internet. "I get used cars that Ford puts online in Tennessee and Ohio. The only sale I attend is Adesa, a dealer's sale in Lexington," he said. And Kain believes more people than ever are using the Web to select cars.
"It used to be people jumped into the car and visited dealer after dealer. They don't have as much time now. They go online to shop and then go to a specific dealer to see a specific car," Kain concluded.
Traffic to used car lots indicates that, for now at least, consumers prefer buying a $6,000 to 8,000 used vehicle rather than financing a new $20,000 one. And until the economy improves, that will likely remain the trend for a while.