Automakers, Auctions Align to Prop Up Used Car Prices

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Thread: Automakers, Auctions Align to Prop Up Used Car Prices

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    Automakers, Auctions Align to Prop Up Used Car Prices

    Automakers, Auctions Align to Prop Up Used Car Prices

    Date: July 7, 2017

    Source: Automotive News, Reuters

    CARLETON, Mich. -- Two lanes apart at a noisy, fast-paced auto auction near Detroit, two vehicles show why major U.S. automakers have a problem with used cars.

    In one lane of the Manheim auction facility, a black 2015 Chevy Malibu sedan with barely 20,000 miles on it sold for just over $13,000, less than half its original sticker price. In the other lane, a white 2013 Chevy Silverado pickup truck sold for $11,500 -- despite having 200,000 miles on the odometer.

    America's renewed lust for new crossovers, SUVs and trucks instead of smaller cars is already hurting major auto companies, which posted their six consecutive month of declining new vehicle sales in June.

    But millions cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships.

    That surge in supply threatens to depress prices for new and used vehicles, raising the risk of losses for automakers and finance companies on lease deals. It also undercuts the value of cars customers want to trade in for a new vehicle.

    So major carmakers, including General Motors and Ford Motor Co., are aligning with auto auction houses with aggressive moves to make sure they are getting the best prices for their vehicles. Such maneuvers include transporting the automobiles to where the greater demand is based on real-time pricing data, spending more to spruce up used cars and slowing the pace which leased cars get moved to used car lots or auction houses.

    Auto auction houses such as Manheim in southeastern Michigan are where the romance of new car marketing goes to die. The dominant player in the U.S. auction market along with rival KAR Auction Services Inc., Manheim treats vehicles like commodities, grading them on a fine-tuned scale from one (poor) to five (excellent) that provides dealers with certainty and transparency.

    "If a dealer sees a 2015 Ford Fusion with a rating of 4.3, they know what to pay for it and what they can sell it for," said Matt Trapp, a Manheim vice president on a tour of the auction, scanning tags on vehicles with his smartphone to pull up a multitude of transactions for that make, model, year, condition and mileage.

    "If you don't want to overbid on this one, wait a minute and another will be right along," he said.

    (continued at link)
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    All of those 24 month leases create some serious competition for new?............

    "a black 2015 Chevy Malibu sedan with barely 20,000 miles on it sold for just over $13,000, less than half its original sticker price"

    GM Financial took about a $4,000 bath on that one.......... Just another "profitable" retail sale?
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Slowing the pace the off lease cars are sold can only be done for so long, eventually they build up on a lot somewhere and before you know it there is a massive stockpile of used cars...

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by BlackGTP View Post
    Slowing the pace the off lease cars are sold can only be done for so long, eventually they build up on a lot somewhere and before you know it there is a massive stockpile of used cars...
    Yeah, I didn't get that either, when you push for sales every month and +30% of your sales are leases and the residuals are more than the cars are worth (and you don't negotiate on the purchase price with the lessor) the only thing you can do to "slow-the-flow" is dial-back the "pull-ahead" incentives, but that ultimately hurts that months sales.

    Public Service Announcement: Having your cake and eating it too, is not an option.............

    Additionally, "stockpiling" off-lease cars seems rather futile, that is dead-money, just getting older every day.
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by BlackGTP View Post
    Slowing the pace the off lease cars are sold can only be done for so long, eventually they build up on a lot somewhere and before you know it there is a massive stockpile of used cars...
    But Mark Wakefield, head of the North American automotive practice for consultancy AlixPartners, said propping up used car values makes sense, but automakers will have to do more to stem the flow of used cars longer-term by trimming inventory levels.

    "I expect to see more production cuts," he said. I seem to think longer leases and the last sentence of the article may be key. Don't be building so many cars.

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    I wonder if these will get pushed to central and south American countries to mask the loss from the NA results? No one is surprised when GM's international operations post a loss.

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by Ed753 View Post
    GM Financial took about a $4,000 bath on that one.......... Just another "profitable" retail sale?
    I thought when companies sell something for a loss, it's a tax writeoff?

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by JimmyDiablo View Post
    I thought when companies sell something for a loss, it's a tax writeoff?
    Yes, but you only get back the tax rate, say GM was paying effectively 20% tax, so they'd only get a tax reduction on 20% of $4,000 ($800), so still a loss of $3,200.

    Plus as I recall GM already isn't paying taxes due to their huge losses around bankruptcy times (though if they keep earning $12B in profits they will eat through their loss carryforwards quickly). So this would just add to their loss carryforward stockpile.

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Funny. I was out of curiosity persuing the Souls at AutoTrader and CarGurus etc. I need TWO things 'splained to me:

    1. How can you sell a new car with MSRP of about $18,500 for $13,000? Even $15,000? The $17,500 stick shifts are listed at 10 grand and some change.

    https://www.cars.com/for-sale/search...28113&zc=48124

    https://www.cars.com/for-sale/search...28880&zc=48124

    2. What's the deal with Illinois? Illinois and other occasional ones in the region, Wisconsin, have super cheap cars. Souls anyway. Is that where the Illinois state budget is going, subsidizing car dealers who "lobby" the ledge?

    Quote Originally Posted by Ed753 View Post
    All of those 24 month leases create some serious competition for new?............

    "a black 2015 Chevy Malibu sedan with barely 20,000 miles on it sold for just over $13,000, less than half its original sticker price"

    GM Financial took about a $4,000 bath on that one.......... Just another "profitable" retail sale?
    That's right, Ed. I guess you don't get it...they make it up on volume!

    Quote Originally Posted by JimmyDiablo View Post
    I thought when companies sell something for a loss, it's a tax writeoff?
    It's a write-off all righty!

    Quote Originally Posted by BlackGTP View Post
    Yes, but you only get back the tax rate, say GM was paying effectively 20% tax, so they'd only get a tax reduction on 20% of $4,000 ($800), so still a loss of $3,200.

    Plus as I recall GM already isn't paying taxes due to their huge losses around bankruptcy times (though if they keep earning $12B in profits they will eat through their loss carryforwards quickly). So this would just add to their loss carryforward stockpile.
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Interesting article. Perhaps it's time they start negotiating the buy-out with original lessors.
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by Neanderthal View Post
    Funny. I was out of curiosity persuing the Souls at AutoTrader and CarGurus etc. I need TWO things 'splained to me:

    2. What's the deal with Illinois? Illinois and other occasional ones in the region, Wisconsin, have super cheap cars. Souls anyway. Is that where the Illinois state budget is going, subsidizing car dealers who "lobby" the ledge?
    Maybe because people in Illinois don't have Souls?





    See what I did there?

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by Neanderthal View Post
    Funny. I was out of curiosity persuing the Souls at AutoTrader and CarGurus etc. I need TWO things 'splained to me:

    1. How can you sell a new car with MSRP of about $18,500 for $13,000? Even $15,000? The $17,500 stick shifts are listed at 10 grand and some change.
    Wow, makes me want to drive out there to buy a car! I assume the two 2016's are cheap because they are 2016's and the dealer is ok with losing money to get rid of them. The 2017 is more perplexing. I wonder when the 2017's came out? Could it be it's almost time for the 2018's to come out and this one has been on the dealers lot for close to a year? Or is it the way it is equipped and people don't want it? Or is it just a bait and switch to offer something dirt cheap to get people into the store?

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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Quote Originally Posted by BlackGTP View Post
    Maybe because people in Illinois don't have BRAINS?


    See what I did there?
    I see what I did there! Referring to the state of the state's finances. NOT, of course, the fine GMI members who are trapped there!

    BTW, comes to mind some pieces I read just a few short years ago when the state and various locals were selling off their highway systems to some Spanish company. The mobsters I mean Illinois public servants got windfalls of one billion, five billion, maybe 10 billion. Of course they pissed that away on bribes and kickbacks I mean on useful services to the citizens, none of which is probably constitutional or authorized by law, but who cares?

    So now they're even more broke and have no income stream from road tolls and I wonder how that Spanish conquistador company is doing with road maintenance?

    Quote Originally Posted by BlackGTP View Post
    Wow, makes me want to drive out there to buy a car! I assume the two 2016's are cheap because they are 2016's and the dealer is ok with losing money to get rid of them. The 2017 is more perplexing. I wonder when the 2017's came out? Could it be it's almost time for the 2018's to come out and this one has been on the dealers lot for close to a year? Or is it the way it is equipped and people don't want it? Or is it just a bait and switch to offer something dirt cheap to get people into the store?
    I don't know how you take over five grand off the top unless you're GM and have that much on the hood. If you clicked those links, it's pretty consistent over a number of area dealers.
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    I had nowhere to negotiate from when we bought out our Explorer Sport lease. It was worth about $5K more than the residual. Explorer Sports depreciate very slowly.
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    Re: Automakers, Auctions Align to Prop Up Used Car Prices

    Because the move away from sedan to CUVs can't possibly impact the used car market... or does it?

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