HispanicBusiness

On a recent afternoon at Subaru of Plano (Texas), managing partner David Thomas had to hand over the keys to the demo he was driving.

With few new cars on the lot and a tight supply of used vehicles, the staff needed to sell his car.

"I drove a used Legacy home," Thomas said.

That sort of improvisation could become routine as auto retailers adjust to a leaner life after Cash for Clunkers. The $3 billion government stimulus program, which offered consumers $3,500 to $4,500 incentives to trade in their old gas guzzlers for new vehicles, left most new-car lots in the area half-empty.

Moreover, most dealerships are grappling with an unusually tight supply of used vehicles - hitting them on both sides of their lots and limiting consumer choices.

Shortages in either new or used vehicles are not that unusual. But local dealers say it's rare to suffer both simultaneously.

"We've never been here before," said Drew Campbell, president of the New Car Dealers Association of Metropolitan Dallas. "Our dealers are doing fine. But we're going to rediscover what our new norm is."

Dealers spend a lot more time these days at used-car auctions and on the phone trying to buy new cars from dealers in distressed states such as California and Florida, Campbell said. The tight supplies are pushing prices up for both.

Fortunately for dealers, sales were slow during the first two weeks of September after Cash for Clunkers ended, easing the impact of the depleted inventories.

New car and truck sales plunged 23 percent nationally in September, with everyone but Hyundai falling. Sales in the Dallas-Fort Worth area dropped 28.7 percent in September and are down 33.9 percent for the year, according to the Freeman Metroplex Recap of new-vehicle sales.

Dealers expected the numbers to be bleak.

"It was like the day after Mardi Gras - dead as a hammer," Thomas said.

At Five Star Ford in Carrollton, Texas, and Five Star Ford of Plano, basic vehicles such as the Escape crossover, Ranger pickup and Focus compact were sold out, prompting both stores to stage "truck month" sales.

"It was truck month by default," said Brian Huth, the general manager of Five Star Ford who is also overseeing the group's newest store in Plano. "That's all we had to sell."

Automakers have cranked up their factories to replenish inventories. The General Motors assembly plant in Arlington, Texas, has scheduled overtime for the rest of the year to increase its production of full-size SUVs.

Cash for Clunkers temporarily pushed demand up to pre-2008 levels, said Don Herring, who owns Mitsubishi dealerships in Texas.

"If your factories are sized for 9 million (annual) sales and you get a 15 million market in August, supplies are going to be tight," Herring said. "It has certainly made September a tough month."

"Six months ago, we had too many cars," Thomas said. "The dealers dialed back their orders. Factories dialed back production. Then along came the clunker program."

Still, lots are slowly being restocked.

Freeman Toyota in Hurst, Texas, and Freeman Honda in Dallas have 30-day supplies of new vehicles, which is adequate, said Dane Minor, general manager of both stores.

"I personally see us on a slow, steady incline," Minor said.

But the used-car business - a critical component of virtually every new-car dealership for the last 15 years - may lag behind.

For more than a year, new-vehicle sales have sputtered, running at volumes 25 percent to 40 percent lower than in 2007. That, in turn, has reduced trade-ins by a similar amount at a time when dealers are counting on used-vehicle sales to compensate for the new-car declines.

In addition, automakers have cut their low-profit sales to rental car companies, which are keeping their vehicles in service longer. Retired rental units are also a primary source of used vehicles.

The good news for consumers is that all of these factors may make their trade-ins worth more than ever.

But for dealers, the months of heavy demand have put enormous pressure on the supply of used vehicles, pushing prices up 20 percent or more to levels where some vehicles cost more than banks will finance.

Minor said that some prices are easing. Wholesale values at auctions have gotten so high that many dealers have cut back their purchases, he said, pushing some prices back down.

"Used cars are becoming a little more plentiful," he said.

Other dealers say they continue to struggle with the highest used prices they have seen. Huth at Sam Pack is offering his salespeople $100 for every used car they can find outside of auctions and regular trades.

"If I can't get you back to trading cars every three years, I can't fill my used-car lot," he said.

Although high wholesale prices have squeezed the profit margins on many used vehicles, the situation may ultimately bode well for new-vehicle sales and bring some balance back to the business.

"History tells me that when used-car values get this high, new-car sales take off," Herring said. "At some point, the walk between new and used gets to be so small that people opt for a new vehicle."