Slow sales, financing woes hit dealers of used vehicles

Used car dealers in Washoe County are having a tough time weathering the recession.

The Nevada Department of Motor Vehicles says the number of licensed used car dealers in Washoe County has fallen by 30 percent in the past year to 127 in May from 179 a year earlier.

Many used car lots stand empty along Kietzke Lane and on South Virginia Street.

The business model for used car dealerships varies from new car lots, which typically finance customers through banks or credit unions.

LaVan Rassuchine, co-owner of Norm's Auto Sales on South Virginia, says many used car dealers purchase the bulk of their inventory at auction using credit lines provided by the auction house. Typical payback time is 90 days, and if the car isn't sold those dealers must either buy the car, sell it at a bare-bones price, or take it back to auction. Pinched consumers, however, have been slow to buy cars.

"You try to get couple thousand dollars profit, but after 90 days you take whatever you can to get rid of it," Rassuchine says.

Another challenge facing used car dealerships is the lack of lending that also has hampered new car sales. Rassuchine says many banks and credit unions are unwilling to finance used vehicles above the Kelly Blue Book wholesale price, which drastically erodes profit margins. And loans that are made above wholesale often must be secured by the dealership.

"Financing has gotten very difficult," Rassuchine says. "If the person defaults sometimes you have to buy it back, and lots of places are not willing to do that and are willing to take lesser profit."

Ideally, she adds, used car dealers try to sell inventory at the retail prices established by Kelly Blue Book. But when wary financial institutions are unwilling to make loans for more than the wholesale price of a car especially to applicants with significantly less-than-perfect credit it makes it extremely difficult to get deals done and make money at the same time.

"Everyone is struggling along," Rassuchine says. "There is nobody lighting the world on fire right now."

Dan Chauvin, owner of Crawdaddy's Used Cars on Wrondel Way, says the restrictions placed on lending have "put a big monkey wrench into the deal."

"It's not a lack of customers, it's a lack of lending," Chauvin says. "You have got 50 dealerships who have $500,000 in floored inventory due in 90 days, and no way to sell those cars."

Rick Saling, owner of Diamond Motors on Prater Way in Sparks, operates under a different business model that has helped his business stay afloat. Saling mostly buys cars for cash and provides his own financing for about 40 percent of the vehicles he sells to avoid the sticky credit markets.

"That has been little bit of a savior," Saling says. "It has helped me because I have had some cash flow, and I don't have to sell that certain vehicle to pay it off."

Saling, who has been in the used-car business since 1986, says opening up a used car lot isn't hard but staying in business can be. Diamond Motors advertises extensively on television (the jingle: "$199 down delivers your next car at Diamond Motors") and also even added a line of mid-priced mopeds in January to offset business lost during the downturn.

"It is not a huge profit, but when you used to sell so many cars and that declines, I ventured out and did something a little different," Saling says. "It serves a purpose to people who can't afford a $200 to $300 payment."

Another key to success, he says, is purchasing the right vehicles at auction, ones that won't heavily depreciate if they aren't quickly sold.

"Ninety-nine point nine percent of the cars I buy are under $10,000 that is my niche. I don't go beyond that."

Leo Loiacano, sales manager at Quality Motors on South Virginia, says controlling overhead is one of the most important considerations during a recession.

Quality Motors also purchases it vehicles outright to avoid credit expenses. When a dealer uses credit to purchase vehicles, he says, the interest owed can become greater than the dealer's expected profit if a car sits on a lot longer than expected.

"The less overhead you have, the more efficient you are," Loiacano says. "In these times expense control is the most important thing to get efficient at."

Several dealerships say providing excellent customer service is another reason their doors are still open while other businesses are shutting down.

"You try to treat the customer right, and they do come back to you," says Rassuchine of Norm's Auto Sales.

Adds Loiacano: "If you get the right cars, make sure they are in good shape and make sure you take care of the customer and build a clientele, in these kinds of times those are the people who come to see just you."