Editor's Note: The print edition of the Journal inaccurately said that Bill Thompson's Auto Sales is out of business. The Spokane dealership continues to do business at 3011 E. Sprague. The Journal regrets the error.
If East Sprague Avenue is any indication, the used-car industry is in turmoil. The busy thoroughfare, long a home to dozens of independent auto dealers, today is dotted with vacant car lots, the remains of some foundering dealerships, and real estate signs advertising the properties for sale or lease.
"For the car industry, it's hell on earth right now," says Mike Van Dinter, owner of A-1 Auto Sales, at 7004 E. Sprague.
Car-lot owners that have survived say that slow sales, stiff competition for inventory, and continued difficulty in financing that inventory are deterring new dealers from opening to replace those that have closed.
Rick Gimeno, owner of Cost-Low Auto Warehouse, at 5033 E. Sprague, says the massive pullback in lending last fall by banks put the squeeze on a lot of prospective car dealerships, leaving holes in a market that's always had high turnover.
Some dealers here say that despite the grim-looking vacancies along Sprague, sales at their own lots have fallen only modestly this year, and they're hopeful that business will pick up after a lackluster summer, as people prepare for back-to-school and winter-driving needs. Others say business is terrible, and that the federal government's Cash for Clunkers program will further exacerbate inventory problems and slow sales.
"It's been ridiculously slow," says Van Dinter, adding that A-1 Auto made its first August sale on Aug. 16.
Van Dinter's brother, Bill Van Dinter, who owns the Car Emporium, at 936 E. Sprague, says that depending on the week, he's either hopeful or deflated. He says sales have been so up-and-down at his lot that it's difficult to tell if an improvement in sales over the last month or so will continue.
"It sure feels like it's picking up, but it's been so spotty, it's hard to put your finger on it," he says.
Develle Tschache, who's been a salesman for nine years at Hardin Auto Sales, at 3324 E. Sprague, says Hardin had good sales in January and February, followed by a slow spring and summer. Now he's hopeful that things are picking up again.
Feeling the pinch
Gimeno, who also serves as president of the Inland Northwest chapter of the Washington State Independent Auto Dealers Association, says that though there's always been a lot of turnover in small dealerships, greater difficulty in getting financing for new dealerships has choked the supply of new businesses to replace those that inevitably close.
Dealers such as Gimeno and A-1's Mike Van Dinter, who also own commercial real estate that other independent auto dealers typically lease, suffer doubly in times like these, when sales at their own lots fall and they also lose lease income when other dealers that lease their land go under, Gimeno says.
Van Dinter says he recently moved A-1 to its current location from property farther west on Sprague one of four dealership parcels he owns in Spokaneand has been trying to lease out its former location as well as the others.
"All of our lots are vacant right now," except for the one his own dealership is using, he says. Van Dinter says the credit crunch that emerged last September seemed to be the final straw for a number of small dealers, including one named Auto Loan USA that had occupied A-1's current location before going out of business last fall.
Bill Van Dinter says that at Car Emporium, he finances his own inventory of 35 to 40 vehicles, saving him from the fate suffered by some dealers that had relied on loans to keep their lots filled and now have folded.
"Money used to be super easy because things were going well," he says. "There were lending institutions out at the auction. The new guys could get easy money. They would go to the auction and spend the money, and they would have X amount of days to sell the car."
Many of those dealerships faltered when banks pulled back on lending activity, and struggled further when sales fell off with the down economy, he says.
"When things tightened up, they couldn't turn the cars in 60 days and they got behind the eight ball," resulting in lenders seizing their inventories, Van Dinter says.
Now, he says, a lot of the remaining independent dealers are those who self-fund their inventory.
"A lot of the guys left have been working off their own cash," he says.
Some dealers here say they'll ride out the stormy sales environment because of that self-financing. Tschache says that Hardin buys its stock outright from a Western Washington wholesaler, so when times are slow it has no financing costs to keep that inventory on hand.
Self-financing isn't always possible, however, because car dealerships in general are "cash-heavy," meaning they have to put a lot of money up front into inventory, Gimeno says. At his Cost-Low Automotive Warehouse dealership, for example, he has about $500,000 tied up in inventory at any given time, he says.
For larger independents, who might have millions of dollars worth of inventory on their lots, a lending relationship with a bank is a must, Gimeno says. He says he's sure that the lending atmosphere will ease up further as the economy recovers, adding that car dealerships operate similarly to other inventory-intensive businesses, such as furniture stores.
Money isn't flowing freely from the consumer side either. Bill Van Dinter says that despite a relative increase in demand for certain vehicles, he's not seeing a lot of people throwing cash around at independent dealerships.
"I don't think they're coming in just because they want a nicer car," he says. People currently are buying out of necessity, because they wrecked a car, or because they have a child going off to college, he says.
The summer has been slower at Hardin, but Tschache says that's not uncommon. Sales are picking up now as people get ready to send their kids back to school, he says.
In addition to facing difficulty in financing, small dealerships say they've had to compete for used-car inventory as new-car lots see their inventories dwindle, driving wholesale prices up.
"What you have is new-car dealers with limited supply so they are going in and buying the two- and three-year old vehicles," he says.
A drop in production of certain types of vehicles has exacerbated an increased demand for larger vehicles, independent dealers say.
"Trucks and SUVs are really hot," asserts Bill Van Dinter. That creates competition for used trucks and SUVs by new-car dealers that can't get new cars on their lots, because auto makers have decreased production. He says estimated market values for some used trucks have risen as much as $900 over the past year because of the relative scarcity of those vehicles now.
He says that despite the Cash for Clunkers program that is designed to encourage people to buy more fuel-efficient vehicles, the drop in gas prices has helped fuel greater demand for used trucks and SUVs as the supply has dwindled.
It's not entirely clear yet how Cash for Clunkers is going to affect independent car dealers over the next few months as it drives people to new car dealers and pinches used-car inventory further by putting some used cars out of commission, Gimeno says.
"You're taking all of these cars off the inventory," Bill Van Dinter says.
The federally-funded Cash for Clunkers program has been met with derision by many used-car dealers, and A-1's Mike Van Dinter contends, "It has literally shut most of the independents down."
Hardin's Tschache, though, says he's not worried. He says that although it might affect inventory some in the short-term, the program isn't likely to last long.
"They can't give everybody money forever," Tschache says.
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