With auto finance rates remaining stubbornly high despite recent Federal Reserve cuts, independent dealerships like Carbox are feeling the pressure. Scott Dooley, owner of Carbox in Kenosha, Wisconsin, joins us on today’s episode of Inside Automotive to share his perspective on the shifting market, noting the resilience of subprime demand and the struggles in moving high-ticket inventory.
Scott Dooley highlights the impact of current high interest rates on independent dealerships like his, noting that while Federal Reserve rate cuts have offered some relief, auto-finance rates remain elevated. These rates discourage prime customers from purchasing, which is reducing the volume of prime financing deals at Carbox. Dooley observes that many of his prime customers experience “sticker shock” regarding current rates, resulting in a significant shift toward subprime customers who are often less sensitive to higher financing costs.
To sustain the business, Carbox has turned to a unique approach for inventory sourcing. Rather than buying through traditional auto auctions, which Dooley says have become too expensive and unpredictable, Carbox sources directly from individuals in the community. This approach has allowed them to obtain vehicles at competitive prices without the added expenses of auction fees and high reconditioning costs.
“We purchase all our vehicles directly from the streets,” Dooley explains. He adds that this approach allows Carbox to quickly bring cars onto the lot without needing extensive repairs. However, he also notes that this method of sourcing requires a dedicated team. As a result, Carbox has invested in personnel specifically to support its off-street buying efforts.
In addition, Dooley details the hurdles independent dealers face as they try to attract prime customers, who often favor large franchise dealerships for their perceived status and professionalism. In response, Carbox has implemented simple branding upgrades, such as encouraging staff to dress more professionally to appeal to these high-credit-score buyers. He believes creating a more upscale dealership image will be critical to attracting and retaining this valuable customer segment.
Despite these challenges, however, Dooley remains optimistic. Carbox has seen growth compared to last year, with a seven-car increase over the same period. Yet, this growth has not come without added expenses; marketing costs have risen by $5,000 over the past year. Dooley notes that these investments in marketing and staffing are necessary for Carbox to remain competitive, particularly in a challenging economic environment.
“Right now, subprime is definitely ticking. We get a lot of customers who come in for those higher interest rates because they don’t really care—they just want to get into a car.” – Scott Dooley
