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$4 Gas Means Few Smiles On Car Lots

Inside the trailer on North Garfield Street, three guys sit at three desks and listen to the groan of the air conditioner. Lately, it's gotten so bad that when one salesman gets a call, others mosey over to see if a real, live customer might be on the line.

In the time of $4 gas, at Auto Bank, a used-car lot in Clarendon, hardly anybody comes through the door or wanders over to check out the merchandise.

All along the strip of car lots on North 10th Street, the story is the same: $4 gas means the prices for big cars are in free fall. The cars sit there lonely as a house in foreclosure, Land Rovers and Caddys and all manner of SUVs gleaming in the summer sun. They are unwanted by anyone but some Europeans who are thrilled to import big American cars at low, low prices.

Little cars, and especially anything from Toyota or Honda, still fly off the lot, but good luck getting one on your piece of pavement in the first place. Prices for anything remotely fuel-efficient are through the roof.

"You can't touch a Toyota or Honda at the auction," which is where used-car dealers find their wares, says Carlos Moalem, general manager of Auto Bank and another car lot around the corner. "We have to pay a premium, and then the customer doesn't understand why our price is above book value. Two more months of this, and we're out of business."

When gas hit $2, and even when it reached $3, car dealers saw little change in their monthly tallies. People grumbled, but they still bought cars and let their fantasies govern their decisions. If they wanted something that would dominate the road, they dug a little deeper and took out a loan.

Not anymore.

A woman came in the other day and traded her BMW X5, which was worth $30,000, straight up for an Acura MDX, which was worth $22,000. "Same year, same miles," Moalem says. "She was willing to take an $8,000 loss on the BMW just to get her gas payments lower. She wanted out of that eight-cylinder, now."

These days, when someone does come in and does make a deal, odds are that the customer is going to leave without that little-kid smile that used to accompany the purchase of new wheels. A guy walked in last week to trade his Ford Expedition, a true behemoth of a vehicle. Problem was, he'd just put $4,800 of repairs into the SUV. Then he learned that all the dealer would give him for it was $2,500. This does not make for a happy customer.

"I said, 'Why'd you put all that money into it? Nobody wants this car!' " Moalem says. "Now he's got negative equity in the car. He came in to try to lower his monthly outlay and get a cheaper car and pay less in gas, but he's going to walk out of here with the same loan payment because he had negative equity on the trade-in. It's a no-win situation."

Many people who used to buy a new car every two or three years are now trying to keep their vehicle longer, putting the money into maintenance. From a dealer's perspective, that's a loser's bet because no matter how much repair money you put into the car, its value is still going to plummet with each turn of the calendar page.

When people do come in, they want high gas mileage at a low price. "They want to spend $10,000 to $12,000," says Moalem, who got into car sales as a way to pay off college loans -- he graduated in mechanical engineering and Spanish literature -- and ended up leaving big, new-car dealerships to start his own lot. "But for less than $10,000, the cars you can sell them are going to get them in trouble. They're just not reliable. Then you're in danger of losing your customer, so I don't want to sell anything at that level."

A couple of blocks away, at Gib Leonard's, a man wanders in to see salesman Jamie Jones and asks if there are any Toyota Camrys or Corollas. Jones walks him over to the '06 Camry on the lot, and the man says, "I can pay up to $5,000."

This is not a happening thing.

With customers watching every penny, and trucks selling -- if at all -- for 50 cents on the dollar, and small cars basically out of reach for used-car dealers ("I have to pay now what I was retailing them for last year," Jones says), the future looks bleak. Jones's salvation comes in the form of exports to Europeans, Russians and Israelis eager to take advantage of the weak dollar, and from his decision to start selling motor scooters, which get 90 miles to the gallon. "I thought it would be a fun little side business, but it turned out to be a smart move," Jones says.

Back at Auto Bank, Moalem doesn't see a lot of hope. He figures it will be five years or longer before enough hybrids are in production to make a real difference in gas consumption. In the meantime, the flow of customers is every bit as bad as during the sniper days in 2002, when nobody wanted to be caught out on a car lot.

An '06 Jeep Grand Cherokee sits on Moalem's front asphalt, still on its warranty and hardly been driven. It was $36,000 new; it's yours for $14,000. It's been sitting for two months. "Can't get rid of it," the boss says. "Can't make $1,000 on it. Nobody wants it."

By Marc Fisher |  June 29, 2008; 1:47 PM ET
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This is what a recession looks like. I do wonder whether this downturn in used car sales will push some of these dealers out of business. With all of the development in Arlington over the past decade, the persistance of this strip of used car lots puzzled me.

Posted by: Josey23 | July 3, 2008 10:39 AM

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