Car Dealers Suffering 'Reverse Sticker Shock'

INDIANAPOLIS, Dec. 14 -- Zero-percent financing and rental fleet downsizing due to reduced travel are two post-September 11 occurrences that have created a ``bubble'' of oversupply in the used vehicle market, according to Pulse, ADESA Corporation's quarterly publication. Part of ADESA's Global Vehicle Remarketing report series, Pulse provides a survey and outlook of macroeconomic indicators, and in-depth analysis of pertinent statistics relating to the $77 billion vehicle remarketing industry.

The report finds that dealers took in large numbers of trade-ins during the record new vehicle sales month of October at precisely the same time many rental companies were taking vehicles out of service. Many of these vehicles found their way to auctions, where wholesale used car prices are established. Along with existing high levels of off-lease units, this ``bubble'' caused wholesale used vehicle prices to fall 5.2% in October and 4.4% in November compared to last year's levels.

``Dealers got a case of 'reverse sticker shock' when they realized their surplus trade-ins had to compete with heavy auction volumes from off-rental units,'' said Tom Kontos, vice president, industry relations and analytical services for ADESA Corporation and author of Pulse.

The study notes that, although zero-percent financing may have dampened used car prices, incentive-driven new auto sales have been a major contributor to what strength there is in the current economy. ``It appears that Detroit, as much or more than Washington, has been responsible for providing economic stimulus in the aftermath of September 11,'' the report asserts. The report also concludes that dealers who buy used cars at auction while the oversupply is being worked off and prices are low, stand to be rewarded with high retail profits this coming spring when used car demand is traditionally at its highest.

The report features many statistical tables and graphs of general economic indicators, new vehicle sales, used vehicle sales, and wholesale market trends. In analyzing wholesale price trends, the report draws on ADESA's database of approximately two million annual transactions taking place at the company's network of 53 wholesale used vehicle auctions, along with industry databases that include auctions outside the ADESA network. By drilling-down into these databases, ADESA's Analytical Services department is able to analyze and report detailed price trends. For example, the report shows that average prices for three-year-old sport utility vehicles sold at auction by automotive finance companies fell by $570 (4.3%), from $13,393 last November to $12,823 this year.

ADESA provides the Global Vehicle Remarketing and Pulse on a complimentary basis to its clients and industry contacts. To be placed on a subscription list and for additional timely information relating to vehicle remarketing, visit ADESA's website under ``The Industry's Pulse'' ( http://www.adesa.com/kontoskorner/kontoskorner.htm ), or call 317-249-4251.

Headquartered in Indianapolis, Ind., ADESA Corporation is a wholly owned subsidiary of Duluth, Minnesota-based ALLETE, Inc. . ADESA operates 53 wholesale vehicle auctions and six heavy-duty commercial vehicle auctions strategically located across the United States and Canada. In addition, the Automotive Services segment of ALLETE operates several other related businesses in the vehicle remarketing industry including ADESA Impact total loss recovery services (with 24 auction locations), Automotive Finance Corporation (AFC) dealer financing, AutoVin Inspection Services, PAR remarketing services, Great Rigs auto transporters, and ADESA Importation Services (AIS). For further information on ADESA Corporation, call 1-800-923-3725 or go to http://www.adesa.com .