DETROIT (July 16, 2001) — A shortage of replacement tires has slowed sales of used Ford Explorers at many Ford dealerships.
"The sales are soft in general," said Tom Mikulec, used car manager of Blackwell Ford in Livonia, Mich. "People are steering clear of models that have not yet had tires replaced."
Since Ford announced in May a program to replace 13 million Firestone ATX, ATXII and Wilderness AT tires used on its vehicles, Ford dealerships throughout the country have faced an onslaught of demand for tire replacements.
Dealers are giving first priority to current Explorer owners and lessees. As a result, many car dealers have not yet been able to change the Firestone tires on used Explorers.
"The first question out of a customer´s mouth these days is ´what kind of tires does the Explorer have?´ " said Jerry Reynolds, chairman of the Ford National Dealer Council. "My dealership is in a bad position — 75 percent of the used Explorers on our lot have AT tires.
"I´m not changing tires until we sell the vehicle. We don´t want to take the replacement tires away from (current owners and lessees), but the result is that some of the used Explorers sit" ignored in the used car lots.
Eager to shore up demand after the tire crisis, Ford is offering cut-rate financing for used Explorers — 6.9 percent, as opposed to a pre-tire-recall rate of 12 percent.
"Ford got involved with the APR program to help move the product," Mr. Mikulec said. "Without it, it would be hard to gauge the sales figures."
While the number of replacement tires is tight, the supply of used Explorers is growing. June was a record sales month for new Explorers, so dealers received a large influx of Explorer trade-ins.
Mr. Reynolds, whose dealership is selling about 30 used Explorers a month, is pitching the sport-utility vehicle to people who normally couldn´t afford an upscale sport-utility.
"If a vehicle is cheap enough, people will buy it," Mr. Reynolds said. "People who would have bought used cars or pickups are buying used Explorers. We are seeing first-timers taking advantage of low interest rates and the availability."
At one dealership, sales of used Explorers are actually up.
"If anything, (the controversy) has enhanced our sales (of used Explorers)," said Charlie Blake, used-truck manager at Heintzelman´s Truck Center in Orlando, Fla. "It is kind of strange. It seems that all press is good press."
More pressure on prices
In the future, the value of used Explorers will be under pressure, even though residual values have been steady since January. Residual value is the price of a used vehicle at the end of a lease. In January, Automotive Lease Guide reduced the 48-month lease residual of the Explorer from 45 percent of the sticker price to 35 percent.
"At this point it´s been interesting; we haven´t seen a huge drop in residuals since our January forecast," said Automotive Lease Guide´s Raj Sundaram.
He said that the company factored in the anticipated negative effects of the Ford-Firestone situation for its forecast.
If anything, Mr. Sundaram believes the emergence of subcompact sport-utilities such as Ford's Escape, pose the biggest threat to future Explorer residual value, not "the tire issue."