Used Cars(Not Clunkers)Bolster Big Retailers' Profits

Washington DC August 3, 2009; The AIADA newsletter reported that profits from used vehicles propped up second-quarter earnings at the six biggest public dealership groups.

According to Automotive News, five of the six groups reported lower profits, but all were in the black. Lithia Motors and Sonic Automotive sold more used cars during the quarter than they did a year earlier and sold more used vehicles than new ones.

The other four groups narrowed the margin of new-vehicle sales over used-vehicles sales, reflecting the larger overall slump in new-vehicle sales. Although consumers tend to hang onto their vehicles and service them during a downturn, service and parts business was down at the public retailers' stores.

And although the cash-for-clunkers program has jolted demand for new vehicles, the rebates aren't cannibalizing the used-vehicle business, said Mike Jackson, CEO of AutoNation, the nation's largest dealership group.

Jackson said the customers trading in their clunkers are frugal, creditworthy consumers who normally hang on to their vehicles and have been drawn to the dealership by the incentives.

Tapping increased consumer demand for used vehicles during a recession helped prop up profits, because the gross profit margin on a used vehicle can be almost twice as large as on a new vehicle, the companies' figures show