Shrinking used-car supplies and rising prices have sent auto dealers in the Inland Northwest scrambling farther and more frequently to wholesale auctions to help stock their lots, those in the industry say.

Although it means that people visiting their lots will see some higher prices, automobile dealers here say this market also means customers will get more money for their trade-ins, especially for late-model or newer, fuel-efficient cars that are particularly a hot commodity.

At the same time, dealers here maintain that so far they're keeping up with the stock needed to fill their lots in the region%u2014even if that means grabbing vehicles from California, Arizona, and as far away as Florida.

"We're just having to work harder, having to hit more auctions, and pay more when people bring in a car for trade-ins," says David Kissee, owner of Valley Auto Liquidators in the Spokane Valley. He says, though, that he's managed to keep up a normal inventory of about 90 cars.

"The trend really has been happening in the last two years, but this year, everyone's feeling it," he adds. "As of January, the industry's really been affected. We can see the decrease at the auctions. In the Bay area, they used to run 3,000 strong, and now they have a hard time getting 1,200. DAA (Northwest) is down to 800 or 900 cars a week."

Spokane-based DAA Northwest, an auto auction business at 2215 S. Hayford on the West Plains, sells vehicles for wholesale consignors including dealers, rental car companies, and leasing institutions from nine western U.S. states and Canada, its website says.

A DAA Northwest representative couldn't be reached for comment. However, on its website, DAA Northwest lists its sales volume as 1,100 to 1,500 vehicles at weekly sales.

In general, Shayne Goff, general manager at Wendle Motors Inc., which carries Ford, Nissan, and Infiniti, says, "There's definitely less inventory out there available." He adds that to fill out an inventory of about 130 to 150 used cars in its own pipeline, Wendle gets about half of the vehicles from trade-ins and half from wholesale auctions.

"We go to California, Seattle, DAA," he says, adding that many auctions have moved to online purchasing with full inspection specifications. "We've been as far as Florida, Arizona. The only way it's really affected us is we have guys constantly working inventory. If you're searching for that specific pre-owned vehicle, it might be harder to find that specific one. We're still finding plenty of cars."

He contends that at least one of the explanations for the used-car price pinch%u2014that the Japan earthquake aftermath may cause severe shortages of new Japanese cars by July and exhaust existing supplies%u2014has spread more of a panic than reality, however.

"That has driven prices up significantly for particularly late-model cars," he says. "Everything is more expensive at the wholesale auction, but we've noticed the late-model cars have gotten more expensive."

He adds, "The good news is your trade-in value is better than it's been in years."

Among several recent national articles on the trend, The Wall Street Journal ran a May 9 story highlighting how used-car prices hit a record high in April and were expected to go even higher. Industry representatives attribute the trend to a number of reasons, including auto production cutbacks during the recession, people holding on to vehicles longer in tough times, a decline in vehicle leasing, and Japan's earthquake and tsunami.

The WSJ article says the situation has added between $1,500 and $3,000 to the price of some used cars in the past sixth months, as dealers saw their inventories of lower-priced and economy cars shrink. That's creating a ripple effect in which dealers are keeping more of the vehicles they get from trade-ins to fill out inventories, rather than quickly dumping them to wholesalers, the WSJ story says.

Those in the auto industry here say the federal government's 2009 Cash for Clunkers program, which was intended to provide economic incentives to U.S. residents to buy newer, more fuel-efficient vehicles, also took out a large number of lower-cost used cars that would normally stock vehicle sales lots.

Jennifer Johnson, owner of Jennifer's Auto Sales and Service in the Spokane Valley, where she typically has about 100 used cars for sale, mentions many of the same factors affecting her sales as those outlined in national media stories. However, she sees other market forces also affecting her dealership's ability to stay flush with used cars.

For one, she says, because fewer people have been leasing cars, fewer of them end up on car lots such as hers after lease agreement periods end.

Johnson also notes that credit tightened in the wake of the 2008 financial crisis. While car companies cut back on leasing new vehicles during that time, banks also made fewer car loans, and in turn, fewer repossessed cars went to dealers, she says.

"I used to get 15 repos a month from the credit union, and now we're down to two or three," she says. She also says she has to go farther - to Phoenix or California - for some wholesale purchases, and more frequently, hitting about five auctions a week instead of two or three. Also, the dealership is working to keep up with escalating prices.

"In one month, for a Ford Focus, I saw a book value change of $2,000 up in value," she adds. "That was about a month and a half ago. That's hard to keep up with when the market is changing so much. It's across the board for all inventory."

However, she says another side of the business, the service department, has picked up.
"My service department has increased tremendously because people are keeping their cars longer and they're spending more for fixing them up," Johnson says.

After 35 years in automobile sales, she says the past few months have been the most challenging conditions she's ever seen. "I cannot recollect it being this tough ever," Johnson says.
She adds, though, that banks have resumed offering more auto loans at good interest rates. A May 18 Associated Press news report also cited that leasing was 21 percent of U.S. car activity in February, which was up from 11 percent in 2009.

"It's just a little bit sluggish, but it's the same in real estate, at grocery stores." Johnson adds. "We have to get the consumer more comfortable again."

Jason Hollibaugh, used car manager for Dave Smith Motors, attributes the used-car market conditions to a combination of factors but says it boils down to basic supply and demand.

"Basically there is a shortage of used cars throughout the country," Hollibaugh says. "That's the result of new car sales are down, so fewer people are trading in their used cars. It's supply and demand. That's by far the biggest factor."

He says, though, that Dave Smith is keeping a sufficient used-car inventory for sales both at its Kellogg, Idaho, headquarters and at its used-car lot in Coeur d'Alene.

"We're where we want to be," he adds. "People need not be afraid, the idea that it's doom and gloom when it's not."

Some in the industry also contend that used-car prices will peak and go back down.
"There's going to definitely be a bubble," says Wendle's Goff. "They'll plateau at some point. They can't continue to go up. I'm not sure they'll fall as rapidly as they've risen."