For used cars: It's in with the old

It's anyone's guess if such December results are sustainable. The recession, foreign competition, the weak stock market and the credit crunch have largely crushed new and used car sales for most of 2008 and prompted economists to forecast bad news for 2009.

CNW Market Research reported an 8 percent uptick in November but noted that used car sales fell 21 percent during the first 11 months of 2008. Citing high unemployment and the weak economy, Fitch Ratings predicted that total car sales will drop 10.7 percent in 2009 (or 35 percent in just the first half of the year.)

Wells Fargo Senior Economist Scott Anderson predicted that consumer spending won't pick up again until the second half of 2009, and even then it's expected to "remain below average."

Automakers in trouble

Economists note that several years of slow sales have prompted Chrysler, Ford and General Motors to idle several plants, consider bankruptcy and to position themselves to lap up a $17.4 billion bailout from the White House.

This past Monday, the U.S. Treasury pledged an additional $1 billion in loans to General Motors' financing arm to help soften its tight grip on credit. GMAC responded by again offering 0 percent financing on several new models in a sale that ends Monday, a one-week offer that could deflate used car sales.

Even so, some economists and industry observers insist that production cuts and the thinning of special financing deals by auto manufacturers bode well for used car sales.

"Obviously the significant cutbacks in production will result in fewer [new] cars in the market, which over time will benefit the used car market," said Mark Oline, managing director of Fitch Ratings Commercial Finance. And if the economy remains weak, he said, more consumers may opt to buy used vehicles simply because they cost less.

For now, used car dealers are celebrating.

"We sold 140 [used] cars last month and we will push 200 cars" for December, Leonard said on Tuesday. "I sold 14 cars [Monday], 11 on Saturday and we're doing a pretty good pace today. The fact is that people are getting financing and the banks are lending money. There are still good banks in Minnesota and we arrange financing."

Gary Lehman, owner of Mainstreet Car Co. in Hopkins, also reported a decent December after a brutal fall. "August and September were my two best months. But then I had days in November when I did not see a customer," said Lehman, who typically sells used Lexuses, Toyotas, Hondas and a smattering of domestics for $4,000 to $11,000. "It was unbelievable. But December came around and it started picking up again."

Lentsch, with the Northland Independent Auto Dealers Association, isn't too surprised by such reports and notes that unique "rent to own" financing for used autos is on the rise nationwide. Still, he is suspicious of any hype suggesting that good times are back. Some dealers' December unit sales may be up, Lentsch said, but profits are lower because dealers are trying to clear out inventory.

"Sales picked up a little in December from what November was, but November was a total disaster," Lentsch said. He said December sales are behind where they were a year ago for most dealers, "so you really have to question them when they say December was pretty good. Good in comparison to what? I think we are going to see a down market through a lot of 2009 across the country."

A glut of used cars

Right now, dealers report a glut of used cars from rental-car companies, consumer lease returns and auction houses. That oversupply has kept prices down for consumers.

The woman who recently bought the Dodge Avenger from Fury Motors paid about $3,000 less than its current value.

A few days ago, Cate and Paul Berry, who are expecting their first child, strolled into Lehman's Mainstreet Car Co. and bought a 2002 Isuzu Axiom for $7,500. A new car or lease just weren't affordable options, said Cate, a student at the University of Minnesota.

Last week, Lehman sold a black 2008 Mercedes sedan for nearly $40,000. The car sells for $87,000 new.

Sales may be brisk for some dealers, but used car prices fell far below what many dealers expected for this time of year, said Paul Walser, who owns the Walser Auto Group in Burnsville.

Walser said his own group misread the market and paid a premium for a number of used cars at auction shortly before sales tanked. "We made a mistake," he said. "We've now had to price them at losses, frankly, to move them out."

Walser said his unit sales for used cars matched 2007 levels, though new cars sales fell 15 percent.

Scott Lambert, executive vice president of the Minnesota Auto Dealers Association cited factors beside price that might be playing a role in some dealer upturns.

"We have not had one of these winters with killer freezes in a while, and they do tend to knock a lot of cars out of the market when they come. So I am sure the weather has probably helped," Lambert said. "You always think you can get through another year, and then suddenly you realize your car can't make it, or you have an accident."

Weather aside, some of America's cars are simply aging and need to be replaced. "Because new car sales are down so abnormally, at 30 to 40 percent, we have been thinking that there is a lot of pent-up demand," Lambert said. "That has to get released somewhere. Maybe it's with used cars."

Dee DePass • 612-673-7725