Protect Used Cars: filters keep the dirt out


TO RUN, CARDS need more than just gasoline. Air is used to turn that gasoline into an explosive vapor to be ignited by the spark plug. And oil circulating through the engine is needed to keep parts moving smoothly and to help dissipate heat.

Unless these elements – gasoline, air and oil – are kept clean, they can carry dirt right inside the engine. Dirt quickly fouls and damages fast-moving engine parts that work under great pressure at high temperatures. I recommend this website to help you choose the best fuel injector cleaners for your used cars.


To prevent this, car makers have designed filters that remove impurities from fuel, air and oil. These filters collect dirt and must be replaced regularly.

Fortunately, the filters on many cars are accessible to the home mechanic. And filters cost only a few dollars to replace.

Until you are old enough to drive, though, you probably shouldn’t attempt to change a car’s filters by yourself. But car owners you know, including your parents, may allow you to help them as they do the job.

Ask an adult to open the hood of his car and help you locate these filters:

Air cleaner

This is a large, round, flat metal container with a funnel-like tube sticking out of one side. On its way to the carburetor, air is drawn into the intake tube and passes through the air filter inside the air cleaner.

Most air cleaners are opened by unscrewing a wing nut in the center of the lid. Other air cleaners have clamps around the sides.


Cars (especially used cars) with dirty air filters run roughly and burn too much gas because they can’t breathe properly. Remove the air cleaner lid and lift out the doughnut-shaped filter. Look through the paper pleats toward a light source. If the dirt blocks the light, it’s probably time to replace the filter.

Most air filters should be changed at least once a year or every 20,000 miles. Each car has an owner’s manual with specific guidelines.

Fuel filters

These small metal or plastic cylinders are located somewhere on the metal fuel line that runs between the fuel pump and the carburetor (on many cars). On some other cars, the fuel filter is located inside the carburetor or the fuel pump.

Cars with fuel injection usually have two fuel filters because the fuel must be very clean so it won’t foul the tiny valves in the fuel injector nozzles.

Fuel filters usually aren’t difficult to replace, but sometimes they’re difficult to locate.


Oil filters

These are cylindrical metal cans that screw right onto the side or the bottom of the engine block. As the oil circulates through the engine and back to the crankcase, it passes through the oil filter. The filter collects dirt and tiny particles of metal from the oil.

Most oil filters are simply unscrewed by hand or with an oil filter wrench. This is done after the oil has been drained out of the engine during an oil change.

On the new filter, the seal around the opening is moistened with a small bit of oil before the filter is screwed into place.

On most cars, the oil should be changed every couple of months. And every other time the oil is changed, the oil filter should be replaced too.

Used-car credit firm’s stock skids

$60M write-off jars investors

Used-car superdealer Donald Foss’ Credit Acceptance Corp. has hit a big pothole, and investors got rattled.

A new computer model of the Southfield auto-credit company’s loans showed potential loan losses higher than previously predicted. Also, Credit Acceptance’s auditors insisted that the company take a charge to conform to accounting rules on the present value of future cash flows.

As a result, the company said Wednesday that it took a $60 million charge to bolster loan-loss reserves, wiping out almost a year’s worth of profits.

Credit Acceptance (Nasdaq: CACC) posted a loss of $27.7 million, or 59 cents a share, on revenue of $40.9 million in the quarter ended Sept. 30, down from net income of $10.6 million on revenue of $32.5 million a year earlier. Market analysts had predicted that Credit Acceptance would have net income of 27 cents a share in the quarter, according to an Ibes International Inc. survey.

Investors savaged the stock early Thursday, stripping it of nearly half its value within minutes of the market’s opening.


From a Wednesday close of $9.75, Credit Acceptance opened Thursday at $5.50, a four-year low. Within minutes, the stock recovered to $7.50, but closed Thursday at $6, down 50 percent over the previous five days and 75 percent for 1997 to date.

Skeptical analysts predicted the losses will prompt Credit Acceptance to take a long look at its strategies, which have emphasized rapid growth since the company went public in April 1992.

“The growth part of this is probably over for them,” said Gerald Lewis, associate analyst at brokers Stephens Inc. in Atlanta, which has maintained its “hold” rating on the stock.

Said analyst Michael Durante of Salomon Bros. Inc. in New York: “Quite frankly, I think competition drove them to buy a lower quality of auto loan than they historically had purchased.” Durante reduced Credit Acceptance to “underperform” from “hold” after Wednesday’s announcement.

Standard & Poor’s also cut its credit ratings on Credit Acceptance Wednesday.

Credit Acceptance funds loans for used-car buyers who have bad credit histories. It makes money by sending the car dealer only a percentage of the total amount financed, an average of about 50 percent, at the time of sale. The rest is sent to the dealer only as the amount financed is paid off.

That 50 percent payment typically gives dealers enough money to cover the acquisition cost of the used car while also giving the dealer an incentive to make sure customers pay off loans.

Credit Acceptance President Richard Beckman said about $25 million of the $60 million charge grew out of data supplied over the past six months by a new, $4 million loan-servicing system that gave more details on potential future loan losses.

“We now have the ability to get that data on a net basis, dealer by dealer,” Beckman said. “That means net of costs – repossession, legal, a variety of costs that we can incur in a problem loan. We can assign those costs on a dealer-by-dealer basis now, and we couldn’t before.”


As a result, Beckman said, Credit Acceptance is being choosier about the dealers with whom it does business, though he would not provide details on numbers of dealers enrolled during the quarter.

Indeed, Wednesday’s earnings release, for the first time, contained no information about the number of new dealers the company had signed up. Credit Acceptance now does business with about 6,000 dealers in the United States, Canada, Ireland and the United Kingdom.

Another $30 million of the $60 million stemmed from an accounting rule covering the present value of loans. Essentially, Beckman said, this involved moving revenue from the current quarter into future quarters through boosting the reserve against dealer advances that are never repaid if loans go bad. That reserve will trickle back in as income, if the loans don’t go bad.

Analyst Lewis said his view is that Credit Acceptance, a hot growth stock for much of its history, tried to grow too fast.

“I think they had this pressure to grow … and they just went ahead and did that and probably compromised some basic tenets they had been using before in terms of the quality of the loans and the quality of the dealers they were lending to,” he said.

“It’s not uncommon for finance companies to do this, to go out and originate a ton of assets so they can show a lot of growth, and then several quarters down the line have these huge losses. It’s a pretty old story.”

Lewis said Credit Acceptance’s growth path probably will be muted from now on: “Their focus now is clearly on survival, not growth.”

Beckman, though, disputed the analysts’ statements.

“We’ve always emphasized profitability, so our emphasis has never been neccessarily on growth, but to make it as profitable as we can,” Beckman said. “We have never managed for the stock market, and we don’t intend to start. We manage for profitability, and generally when you make money, the rest follows. We’ve always been selective of dealers, but now, with some of our competitors out of business, we can afford to be even more so.”

Credit Acceptance went public in June 1992 at a price, adjusted for subsequent splits, of $2.17 a share. The company grew rapidly, as did its stock price. Revenue ballooned from $30 million in 1993 to $125 million last year and is on track to reach $160 million this year. The stock hit its all-time high of $28.75 on Oct. 18, 1995, dipped as low as $17.75 in July 1996, then recovered to $28.38 a year ago. Since then, it’s tumbled steadily amid concerns of increased consumer debt and bankruptcies.

Several of Credit Acceptance’s rivals also have had major financial trouble. Two of them, American Auto Funding Corp. in Chicago and Dallas-based Jayhawk Acceptance Corp., have declared bankruptcy.

Credit Acceptance had been one of the most shorted stocks on Wall Street in the weeks leading up to Wednesday’s announcement and the subsequent stock-price tumble, according to Bloomberg News.

“Somebody made a ton of money today on that,” said Lewis.

Pull-ahead programs supply used-car lots

With late-model used vehicles at record prices, some dealers are putting new spins on programs designed to get customers out of their car loans or leases early. The payoff: snaring the customer’s former vehicle for the used-car lot, often as a certified used vehicle.

The incentives vary: new vehicles at lower monthly payments, cold, hard cash or a way out of a burdensome payment.

Brian Benstock, general manager of Paragon Honda and Paragon Acura in New York City is one of the dealers turning to lease customers for used cars. He became concerned about his future certified used-vehicle inventory in 2008, when new-car sales and leasing plunged. So he started coaxing new-car customers into leases of 36 months or less.

He figured that 24 months into those contracts, many customers would have enough equity in their vehicles to get out of leases early and into another new Honda or Acura at monthly lease payments comparable to or less than their current payments.

Benstock’s efforts started bearing fruit last year. Of the 3,000 certified Hondas and 1,000 certified Acuras he sold in 2010, 60 percent were off-lease vehicles generated from his customers, up from 35 percent prior to last year.

A certified factory

“I call it my certified used-vehicle factory,” says Benstock, who, Honda Motor Co. says, was the top seller of certified used Hondas and Acuras in the United States last year. “The loser wins at the auction. It’s always the person who pays the most that buys the car.”

Record used-vehicle prices — driven by tight supplies, soaring gasoline prices and the threat of a new-car shortage as a result of the earthquake in Japan — are making it difficult for some dealers to find reasonably priced used vehicles, especially at auctions.

Prices of compact cars typically are flat from March to April because of seasonal factors, says Jonathan Banks, senior director of editorial and data services at NADA Used Car Guide. But the average wholesale price of a 2010 Honda Civic sedan LX jumped to $14,316 on April 12, up from $13,786 on March 29, the guide says.

Banks believes the industry will see higher prices for much of this year.

Exchanging equity

Marty Cumba’s goal is to get owners with equity in their used vehicles into his dealership — even if he doesn’t sell them a vehicle.

About six months ago, the owner of Sun Chevrolet in McMurray, Pa., began offering to buy consumers’ vehicles and pay them the difference between what they owe and the vehicle’s value.

“We call it exchanging your equity for cash,” says Cumba.

Cumba advertises the program in free local newspapers because those publications typically target bargain hunters and because his program appeals to people who can’t afford their payment or who are looking for quick cash.

“It brings in about 20 to 30 percent of our used-car inventory, versus auctions, trades-ins and what have you,” Cumba says. “It’s been really successful.”

New idea from BMW

BMW Group Financial Services, which has conducted pull-ahead programs for lease customers for years to bolster the loyalty rate among those customers, started a similar program last fall, targeting retail loan customers with equity in their vehicles. The finance company identifies customers who have equity in their vehicles and passes those names along to local dealers, who make a sales pitch to the consumer.

The goal is to get those customers into new BMWs before their loans expire and their previous vehicles into dealers’ certified used-vehicle inventory, says Shaun Bugbee, BMW Financial vice president of sales and marketing.

Off-lease vehicles are a primary source for certified used-vehicle programs. But because BMW Financial leased fewer vehicles during the worst of the recession, its lease maturities in 2011 are expected to drop to 94,000 units, from about 150,000 last year, Bugbee says. The finance company’s portfolio also includes more loan contracts than in previous years, he says, making it good business sense to court those loan customers.

From December through March, the retail program generated 1,753 new-vehicle sales and the same number of late-model BMWs for potential retail sales, Bugbee says. About 70 percent of those customers were 24 to 33 months into their retail loans, which typically were for up to 60 months.

“It’s a win-win,” he says. “You have an opportunity to deliver a new car and a pre-owned opportunity to fill a gap in the dealer’s demand chain that wouldn’t necessarily be filled because of the reduction in the off-lease vehicles.”