But in the 1990s, a good used car now demonstrates the shrewdness and dealmaking prowess of its owner. This change in image has occurred through the durability of later-model autos, the growing availability of these vehicles through expired leases, and the rising price of new cars-now above $20,000 on average.
These changes have converged with auto-retailing concepts introduced by outsiders to the industry. These ideas, backed in part by electronics retail giant Circuit City Stores and entrepreneur H. Wayne Huizenga, look to eliminate the many negative stereotypes of the used-car sales experience-such as poor-quality product and leering, plaid-jacketed, fast-talking salesmen-and focus more on customer needs.
As a result, the used car has become a subversive weapon in a movement to change the basic nature of automotive retailing. The used-car industry, estimated at $324 billion and bigger than the new-car industry, is undergoing a retail revolution that has changed the way used cars are sold-and that soon could have effects on the new-car market.
"A lot of the things began in used cars, but if they're successful, there will be tremendous pressure on new cars to be sold in the same fashion," says Donald Keithley, a partner at J.D. Power & Associates, a customer-satisfaction researcher.
CIRCUIT CITY FIRST IN
Taking a cue from General Motors Corp.'s new-car retail pacesetter division Saturn and also from its own consumer electronics business, Circuit City Stores was the first to realize the possibilities of building a national brand name based on low-mileage used cars. The electronics retailer opened a concept store called CarMax in Richmond, Va., in 1993.
Unencumbered by franchise laws and unattached to any manufacturer, CarMax sells a broad variety of mostly 1- or 2-year-old vehicles, many of which were purchased from independent lease companies or rental fleets.
Not only is CarMax different from other used-car outlets in inventory procurement but also in its showroom atmosphere.
SET UP LIKE TVS ON SHELF
Cars are arranged like the TVs in a Circuit City store: for instance, different brands of sport utility vehicles are parked together. Instead of plaid jackets, the sales staff wears golf shirts. Also, the pay system is different. A sales associate or consultant is paid a salary and earns a standard fee per car, regardless of whether it's a Mercedes-Benz or a Chevrolet Geo Metro. That means the store is geared to sell a car the customer wants instead of the car the dealership needs to maximize profit.
The stores are equipped with computer kiosks, so a customer can browse the inventory without being pressured by a salesman. The non-negotiable price appears on the interactive computer screen, which the customer can touch to get a printout.
TV spots from DeVito/Verdi, New York, poke good-natured fun at traditional car-selling techniques, which to consumers seem time-consuming, annoying, ponderous and expensive.
Customers like the concept, and competitors took notice. Names like CarChoice, Car America, AutoNation USA and Driver's Mart began to appear. Some were run by outsiders, such as Mr. Huizenga, who had made fortunes with Waste Management and Blockbuster Entertainment. Others, like Driver's Mart and Car America, were the creation of dealers.
AutoNation USA's consumer "Bill of rights" embodies the changes many of the newcomers proposed to bring to retailing. Some of these rights: "You have the right to enjoy a remarkably pleasant shopping experience with no pressure. You have the right to know that the low price you see is clearly marked."
Manufacturers noticed that consumers, long abused by the traditional used-car system, enjoyed the respectful treatment.
REFURBISHED TO STANDARD
As a result, used-car certification programs, in which vehicles are refurbished to factory standards, have proliferated to help carmakers bolster their franchised dealers against the superstores.
The manufacturers' embrace of certification has shown they recognize their used cars have value, are important to overall customer satisfaction with a brand and have a large impact on the new car market.
A truth has dawned upon both the industry and interested outsiders-the used-car market is huge, and it is underserved.
Art Spinella, director of auto consultancy CNW Marketing Research, estimates the value of the used-car market in 1996 at $324.4 billion, based on sales of 29.1 million units. That compares with a new-car market of $314.9 billion based on 15.1 million units.
Those numbers do not include private-party transactions, estimated by CNW at $35.7 billion for 11 million transactions where money changed hands. In other words, the used-car market is larger than the new-car market.
At the same time, the auto retailing business is extremely fragmented, with 63,000 independent used-car dealers and more than 20,000 new-car dealerships, which sell both used and new cars.
The market's sheer size and split-up nature has not been lost on Wall Street, which recently has been plunking down money on auto dealerships at an unprecedented rate.
"For the size and history of the industry, it is consolidating more rapidly than anything I've ever seen," says Edwin Underwood, an analyst for investment researcher Scott & Stringfellow.
Mr. Huizenga's Republic Industries entered the fray last year with a used-car superstore called AutoNation USA. But Republic quickly grew beyond used cars and by early 1997 had acquired enough retailers to become the nation's largest dealership chain.
Republic wants to buy new-car dealerships in the same cities where it plans to build used-car superstores. Republic also bought two rental-car companies, Alamo and National, and has stated its plans to serve its customers needs from cradle to grave.
All the businesses will connect, with cars going from the rental fleets into the superstores and so on.
Mr. Huizenga's bottom-line strategy is to squeeze as much value out of any given vehicle during its useful lifetime as possible and to assemble an organization built to accomplish that goal.
Doubters correctly point out that these companies have yet to prove they've got staying power. After all the, first CarMax opened in 1993, and the first AutoNation USA and Driver's Mart appeared last year.
NOT OVER THE HUMP
CarMax has not made a profit yet on its superstores. Republic has yet to prove it can integrate all its businesses into a coherent whole. Driver's Mart is still in its launch phase.
"I'm just not convinced that you can build a transportation industry business solely on used cars," says Mr. Spinella. "One reason franchise dealers haven't disappeared is they have five different businesses to draw on. They have new cars, used cars, parts and service, finance and insurance."
Those who believe in the superstores would reply that with a $600 billion-plus auto market, there's more than enough wealth to spread around.
In addition, the entrance of Mr. Huizenga seemingly underscores the potential of this industry. His track record with Waste Management and Blockbuster shows his business ventures are not to be taken lightly.
Regardless of which of the new competitors succeed or fail, one thing is certain. The used-car image is being transformed, and the Plaid Age will never return.