Internet, rising loonie transformed used-car market

Unless you have an affection for polyester suits, tinsel streamers and mouldy office trailers, you’re probably not missing the 1980s very much.

Back then, searching for a used car often meant kicking tires on small lots up and down Danforth Ave. and other Toronto thoroughfares that had been overrun by motley clusters of used-car dealers hawking their wares with grease pencils and sagging balloons.

Nothing says fly-by-night quite like a sales office on wheels.

“We’ve come a long, long way from the Danforth, which was the street that typified the business then,” says Bob Pierce, director of member services for the Used Car Dealers Association of Ontario (UCDA).

While small, independent used-car lots may be hanging on, the used-vehicle business has changed dramatically over the past 25 years — and much of it for the better.

LONGER-LASTING VEHICLES

Automobiles are lasting much longer today, a benefit every one of our industry observers mentioned right off the top. A used vehicle can have a lengthy second life and a third one, too.

“Cars have improved dramatically both in terms of corrosion resistance and mechanically,” says George Iny, president of the Automobile Protection Association.

“Today, a five-year-old used car can offer many years of good service and can easily make it to 12 years and 250,000 kilometres. In the early 1980s, it was likely ready for the scrap heap at 160,000 kilometres, mainly due to corrosion.”

BETTER DISCLOSURE

Mohamed Bouchama, of CarHelpCanada.com and host of CP24’s Auto Shop, says dealers today largely sell decent vehicles because the disclosure rules have shone a bright light on the bad practices of the past.

“It was a jungle back then. Dealers used to sell junk and there was no protection for the consumer,” Bouchama maintains.

He rhymes off a litany of complaints of the time: rolled-back odometers, undeclared vehicle writeoffs, cross-province trade of wrecks, and the usual deceitful tactics, such as plugging leaky radiators with temporary sealant.

“There’s far better consumer protection today with disclosure,” Pierce agrees. “Some 75 per cent of cars at the wholesale auctions come with histories.”

IMPROVED REGULATION

Pierce cites the formation of the self-regulating Ontario Motor Vehicle Industry Council (OMVIC) in 1997 as a key step in the development of a more ethical and transparent dealer industry.

It overhauled the Motor Vehicle Dealers Act, which came into effect in 2010, further strengthening disclosure obligations for both retailers and trade-in customers, as well as improving Compensation Fund claim coverage and specifying stiffer penalties.

Hand in hand with new regulations came mandatory training courses for dealers, says Pierce, partly to inform them of the changes, as well as to impart a more professional code of conduct.

INTERNET CHANGED EVERYTHING

But while the industry had been coerced reluctantly into the light of day, nothing prepared dealers for the advent of the Internet.

“When I started in the business, I would wait for the new Auto Trader publications on Thursdays and flip through them all, looking for the right used car,” recalls Mark Derry, an automotive adviser and former salesman. “My hands would be black with ink.”

The Internet changed everything.

Not only were dealer inventories displayed online and search functions able to easily pinpoint desirable vehicles, there was also a cornucopia of reliability information as well as ownership experiences posted by consumers.

“Once upon a time, Phil Edmonston, author of the Lemon-Aid guides to new and used vehicles, cornered the market. But today, the Internet has exploded with information,” says Derry.

In addition to good automotive information, new tools started appearing on the web, first in the hands of dealers, then migrating to consumers.

“Web-based history searches — such as CarProof and Carfax — are available to the general public,” says Iny. “Although they’re not perfect, they have contributed significantly to reducing the incidence of odometer fraud and disguised, repaired writeoffs.”

“Twenty-five years ago, even the price to ask or pay for a car was sometimes a mystery. Canadian Black Book would not share its info with consumers, and you had to go to the library for Red Book prices.”

Even the wholesaling side adopted an e-business model using the Internet. Dealers no longer had to be present at an auction to buy inventory — online photos and detailed records allowed buyers to snap up vehicles remotely, saving time and money.

NEW-CAR DEALERS MOVE IN

New-car dealers couldn’t help but notice the used-car industry was changing — and so were public perceptions — and they were anxious to get in on the action.

“When I started in 1991, profit margins were 10 to 15 per cent on new cars. Today they’re more like 5 to 8 per cent, thanks to unprecedented competition, especially in a big market like the GTA,” says Derry.

With razor-thin margins on new product, many new-car dealers have bolstered their used-car operations, where profits easily could be double on each car sale.

“There’s a real emphasis today on pre-owned, certified vehicles by new-car dealers, whereas 25 years ago, these vehicles were hidden at the back of the lot,” Pierce says.

IMPACT OF LEASING

A big reason for the new focus on used vehicles was the rising popularity of leasing. New-car dealers had the pick of lease returns, as well as trade-ins, and could stock a fetching inventory of late-model used vehicles for discriminating shoppers.

Iny says leasing has presented an embarrassment of riches for new-car dealers, so much so that many lease returns end up going to auction where independent used-car dealers can pick them up for resale.

“Before leasing became popular with consumers, there was a chronic shortage of recent used vehicles, and the good ones were usually snapped up by franchised dealers as trade-ins,” Iny says. “This is not the case anymore.”

Over the past decade, shoppers have enjoyed unprecedented access to a large supply of three- to four-year-old used vehicles on independent lots at competitive prices, says Iny.

THE RISING DOLLAR

Derry points out the Canadian dollar’s rise to parity with the U.S. greenback sent shock waves through the industry, putting downward pressure on new-car prices, which in turn impacted used-vehicle prices.

“Dealers were losing from $1,000 up to $6,000 on a vehicle overnight,” says Derry, explaining that manufacturers’ sticker-price adjustments caused resale values to ratchet downwards.

Without a substantial price gap between a new and used model, independent dealers risked seeing shoppers walking into a new-car store to buy a factory-fresh vehicle.

MANUFACTURERS MOVE IN

Seeing their profit-strapped dealers mining used-car sales for revenue streams, the manufacturers felt compelled to grease the wheels. Derry points out many automakers now offer low-rate factory financing on used models — a subsidy that was unheard of in the 1980s.

Factory-certified remarketing programs that subject used models to an inspection and reconditioning regimen is another innovation that extended the automaker’s brand deeper into the used-car marketplace.

TODAY’S REALITY

The used-car industry has grown and matured over the past quarter-century — but it still has a way to go.

As beneficial as the disclosure rules may be, the information is only as good as the record-keeping. Buyers are still getting partial data — a collision repair paid in cash may not appear on a CarProof report — and even consumers themselves are loath to disclose damage sustained by their trade-in.

“Buyers are liars” is an age-old industry saw that apparently still holds true.

Iny says the much-advertised “certified” reselling programs by manufacturers are not always up to snuff, since dealers have been known to cut corners.

“The carmakers have taken a hands-off approach to consumer complaints about certified vehicles, even when incompletely checked prior to sale,” Iny charges.

The best protection, our experts agree, is the time-honoured practice of getting your prospective used vehicle inspected by a trusted, independent technician.

“Some dealers try to ‘snow’ the consumer into thinking a warranty replaces an inspection,” Iny warns.

Bouchama says one issue that hasn’t been addressed over the past 25 years is the province’s woefully inadequate safety certification process, which inspects a handful of automobile safety systems, such as the brakes and suspension, but leaves newer technologies off the checklist.

“Ontario certification doesn’t mean much,” Bouchama says, drawing on his experience listening to motorists’ complaints. “Consumers still have to be vigilant when they’re shopping for a used vehicle.”

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October 2011

MARK TOLJAGIC

The Toronto Star