BESSEMER, Ala. -

Speaking for independent dealers from Connecticut to California, Auto Remarketing caught up with Anthony Underwood this week while he was driving back to his dealership after making one of his biweekly auction trips.

The current president of the National Independent Automobile Dealers Association called the search for inventory — especially fuel-efficient models — “amazing.”

“You talk with seasoned dealers who have been in the business for 30 or 40 years and they all say, ‘It’s the worst I’ve ever seen it,’” Underwood shared with Auto Remarketing.

“The best description out here is dealers are saying it’s not any fun anymore. It staggers the imagination that we’re paying this,” Underwood added.

While returning to his store located near Birmingham, Ala., Underwood recollected his own personal experience with a gas sipper. Three months ago, he spotted a 2011 Ford Focus coming down the lane and bought it for $11,500 despite his instincts telling him that was too much.

“Now that same vehicle is $13,500, maybe $14,000. To make it worse, a 2009 Focus is bringing $11,000 now. That’s just how ridiculous it is. When’s it going to end?  I don’t know,” said Underwood, who was NIADA’s Quality Dealer of the Year back in 2003.

“Most dealers have a memory like an elephant,” he continued. “We all remember what we paid a year ago or two years ago. That’s the paradox of it all. This is an unprecedented time we’re dealing with. We don’t have a playbook to know what we’re doing.”

Some analysts have tried to compare the current situation with 2008, especially in terms of gas prices. However, Underwood doesn’t believe that’s necessarily a fair assessment.

“Keep in mind, when gas spiked three years ago, people were trying to dump SUVs and you could buy them for a song. Now, there’s no escape. There’s no particular vehicle category that has a price break,” Underwood surmised.

And that especially seems to be the case with fuel-efficient models. Even units such as the Chevrolet Cobalt — a model Underwood thinks dealers used to be able to find “any day of the week” — are becoming more difficult to acquire at a price that won’t completely erase store margin.

Underwood offered what veteran dealers readily understand, “Small cars are easy to sell, but the problem is they have very thin margins.”

Is the Inventory Solution Online?

When asked about whether online avenues would be a better route to find vehicles that would turn, Underwood gave a mixed assessment.

“The online route obviously gives you more coverage area but the problem is that you’re buying cars in different locations. If you only have one or two in each area, you’ve got to try to group them together to get the transportation done in time,” Underwood explained.

“Buying a truckload is hard to do unless you’re paying a considerable price for them. Sometimes, you’re only buying maybe two in Dallas and one in Hattiesburg (Miss.),” he continued.

“If you’ve got 10 cars scattered across the Southeast, you’ve got a problem trying to get them back in a reasonable time or getting a good price on getting them back,” Underwood went on to say.

Even if logistics can be difficult, Underwood has seen plenty of online activity while he’s been at a physical auction.

“I think a lot of dealers are buying online. I’ve seen dealers from all across the country bidding on cars. That’s the advantage, you have the opportunity to buy either in lane or online,” Underwood observed.

Franchise Stores Feeling the Pinch, Too

While Underwood is a veteran independent dealer and is at the top of NIADA, he doesn’t think franchise stores are having any easier of a time finding inventory.

“The old stories back in the day were the new-car dealers were getting the trade-ins so they don’t have as difficult a time. But I don’t find that to be true,” Underwood told Auto Remarketing. “I think the new-car dealers are not getting the trade-ins that they got in the past. And if so, they’re not the quality of car that they’re used to because now they’re retailing high-mileage cars on franchise dealer lots now more than ever.

“New-car dealers are standing toe-to-toe with independent and they’re bidding on these cars, too. And they’re paying the price,” he acknowledged. “You may find in many cases where a franchise dealer will stay a little longer and pay more for it. But they’re still facing the same dilemma.”

Buyers Still in the Market

Though inventory managers are struggling to scour auction lanes to find turn-ready models, Underwood thinks buyers are still coming to lots or shopping online, ready to make a deal.

“It’s not a problem with traffic. The problem is how we’re paying the price for cars. People come in and they want to buy cars. They’re looking to do business. That’s not the problem,” Underwood insisted.

“And it’s not isolated to a certain location. People are coming into the stores to do business. The problem is we all have a small inventory to choose from and our margins are now less than they’ve ever been because we’re paying more for the cars,” he continued.

“We’re not seeing people necessarily complain so much about the price of the car. The problem is getting them financed and getting them to put enough down. It’s a three-ring circus — the finance company, the dealership and the customer — and we’ve all got to agree upon what’s a fair value,” Underwood added.

What If Gas Prices Drop?

Analysts also have been projecting fuel costs eventually will dip from the nationwide average that’s at about $4 per gallon. Should gas prices fall significantly, dealers could be left in the lurch with lots of fuel-efficient models because as Underwood said, “Americans don’t like small cars.”

NIADA’s president conceded, “The biggest fear right now is you buy a car at a certain value and, by chance, tomorrow the market just drops. Now when you’re retailing that car, you’re cost base is retail-plus. You can lose money on 30, 40, 50 cars on the lot. That’s the biggest fear right now.

“Falling gas prices would take the pressure off the small cars,” Underwood predicted. “We all know we’re paying too much for small cars based on the emotion of good gas mileage. There’s no reason why the 2010 Hyundai Accent should bring $10,500 or $11,000. You could probably buy that car new for not much higher than that.”

Advice to Fellow Dealers

Underwood has been instructing his lot personnel to use a strategy that could work for any size dealership — franchise or independent.

“You have to get cars that are as close to retail possible, but you’re going to pay the money for it,” Underwood asserted. “Back in the old days, you could go out and replace a car tomorrow. Today you probably can’t. You need to make money when you sell that car.

“You’ve got to make sure you buy right,” he went on to say. “There’s an old saying in the car business: You make your money when you buy the car; you realize the profit when you sell it. If you buy right, that’s half the battle.”