Should I pay the ridiculous prices for fuel efficient Japanese cars?

What follows is an exchange with John Creran, a high-performing Nissan retailer.  His question is one that I’m being asked frequently, so I hope this helps.

Dale,

Nissan Pivo Concept Car

What is your take on the Japanese compact car market, pre-owned (Civic, Sentra, Corolla)?  Last month, New Sentra sales spiked and left dealers with very low supply.  We have seen that the next 60-90 days will have less New car inventory availability due to Japan’s crisis.  Since Sentra did not lease very well 3 years ago, not many come off lease.  

2007-09 are running through the lanes at insane pricing, as you can imagine.  I refuse to pay $2-3000 over book, plus fees, transport, recon to get these cars on our lot.  We have a fair amount rolling in.  I personally refuse to get caught in this mentality that we MUST have these cars in abundance and pay through the nose to get them.  Three months ago we were retailing these cars less then they go in the lanes for today.  I watched 2008 base Sentra’s pull over $11,000 this morning.  Beat up, rough cars pulling $10,500+.   I can only imagine the profit margin these cars will have to the dealer.

-John C

John, 

I too have been watching the value of these late model, fuel efficient import cars rise. Nissan’s in particular seem to be extraordinarily hot.  I did some modeling the other day on what it takes to buy used Nissan’s because I saw how hot they were, and there was no sense in buying them.  To be sure, you’ve got two things happening, first, the price of gas, and the second, the Japan factor.  Personally I would not hoard cars and pay ridiculous money based on the Japan factor.  While I could be wrong, I think that situation is coming under control.  The price of gas however, is something that I’m not sure about.  Having said this, I would not do as many are doing, and that’s buying all they can at prices that are “whatever”.  If the above referenced conditions persist, it’s possible that these guys could win, but if those conditions ease, they could also be hung. 

You need to ask yourself a basic question, and that is whether you are a speculator or retailer.  I personally don’t think that dealerships do very well as speculators.  True enough, you might miss some opportunity, but I’ve seen the aftermath of betting wrong, and it’s not pretty and often disastrous.  My best advice therefore, is to resist the temptation of going long, you may need to pay more than you would like but don’t pay so much that you can’t make money. 

-Dale

Dale,

Drew and I agree with you on this one.  We talked plenty about the Japan situation and we do not believe it will be as bad as people are saying.  Black and Red paint will be an issue over the summer from what we hear, but for Nissan, there will be a small shortage of production of New cars.  Nissan closed down 6 days this week in US and Mexico and I understand some other manufacturers followed suit.   Nissan took the break now but will not break like they do June/July this year.  We believe the fuel pricing will be the main issue for this summer, identical to 2008.

Paying ridiculous prices in the lane just does not make sense.  We always have and will continue to keep things rolling and take deals if they are right to market.  If we own a car wrong, shame on us.  Take the deal, get it out and move along.  To purposely overpay is insanity.

We believe this year will be similar to 2008.  Ironically, the cars from 3 years ago will now be coming off lease and back into remarketing circulation.  We were loaded with trucks and suvs, selling compacts and mid sized sedans.  It has already started for us.  We’ve traded several SUV’s in the last 2 weeks and the reasons for trade: FUEL PRICES!

Thankfully, the challenges and solutions for such an issue are still fresh in our minds. 

 -John C

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