New Kids on the Auto Mile: No-Hassle Used-Car Chains
DETROIT — WILL Americans buy a car from the same company that sells them television sets and microwave ovens?
The answer seems to be yes - and could be triggering a retail revolution in the auto industry. When thousands of the nation's automobile dealers gather in Las Vegas, Nev., next week for their annual convention, they'll have plenty to talk about.
With motor-vehicle prices at an all-time high, affordability has become a critical concern for carmakers and customers alike. And motorists are looking for ways to make the buying process easier and less intimidating.
''The way we sell cars is going to change [substantially] in the next five years,'' warns Yale Gieszl, Toyota Motor Company's top American executive.
These changes may affect not only how you buy your next car, but where you buy it. And in the process, it could mean a sizable shake-out among the nation's auto dealers.
The process has already begun, though the biggest changes are taking place on the used-car side of the business. That's probably not surprising when you consider that Americans bought at least 30 million used cars and trucks last year, more than double the number of new vehicles sold in the United States. Estimates vary, but that business is worth somewhere between $200 billion and $300 billion a year.
Still, buying a used car is a harrowing ordeal for many people.
Circuit City, the massive appliance and electronics retailer based in Richmond, Va., wants to change that. Last year, the company opened four CarMax ''superstores'' in the Southeast.
''When you drive up, you'll see an attractive, modern facility with 400 to 500 vehicles displayed out front in a logical, easy to access fashion,'' says W. Austin Ligon, senior vice president of CarMax. The operation focuses on ''lower prices and no haggling to get those prices in a friendlier shopping environment like you have in other areas of retailing.''
CarMax customers can check what is in stock by signing on to one of the touch-screen computers scattered around the showroom. Buyers get five-day, money-back guarantees and longer warranties than those typically offered on used vehicles.
Even as Circuit City prepares to begin the nationwide roll-out of CarMax, the concept already is being cloned. H. Wayne Huizenga, founder of the Blockbuster video store chain, is ready to launch his own used-car superstore system. Before the end of the year, there should be at least 10 Driver's Mart showrooms scattered across the country.
The Grand Rapids, Mich., company eventually plans to set up 100 used-car superstores, each with up to 650 cars in stock at any moment. Like CarMax, Driver's Mart promises to deliver low prices and a no-hassle sales environment. It also plans to offer a money-back guarantee. And Driver's Mart is considering a plan in which buyers would be able to swap among several different vehicles. They might choose a sport-utility vehicle in the winter, then exchange it for a convertible during the summer.
''We want to improve a process customers don't like,'' explains Don Flow, president and chief operating officer of Driver's Mart.
For the moment, the superstores are focusing on used cars. That's primarily the result of strict state franchising laws that limit the number of new-car dealers. And auto manufacturers have had a long-standing policy against issuing new franchises to corporate dealerships. But that could change. Late last year, Chrysler Corp. agreed to allow CarMax to sell some of its new cars at a superstore in Norcross, Ga.
Chrysler president Bob Lutz calls it a ''wake-up call'' for staid new car dealers who've resisted new ways to make the retail system more efficient and customer friendly. For the moment, neither Chrysler nor CarMax plans to add additional new-car franchises, but insiders say it may be just a matter of time.
''This is a development we have to watch very carefully,'' says Alex Trotman, chairman of Ford Motor Company. ''We have to see if they can satisfy customers as well as traditional franchises.''
Even if the superstores continue to focus on used cars, there's reason for dealers to be worried about the future. In today's hotly competitive market, at least half the nation's dealerships are running in the red. And those that are making money are earning it primarily on their used-car operations. If the superstores drive down prices - and margins - even more dealers will sink into the red, cautions J. D. Power, a California car-research expert.
The traditional new and used-car dealer is ''an endangered species,'' he warns. More than a thousand a year, on average, have closed their showroom doors over the last decade.
But Toyota's Mr. Gieszl says many traditional dealers will survive by adopting practices used by the superstores.