Wednesday, July 25, 2012 | Edited by Daniel Moores
||Small and Mid-Sized Cars, Minivans, Hybrids Are Among 2012 Winners
Small, budget-friendly cars with miserly engines and mid-sized sedans are hot. So are hybrids, minivans and traditional mid-sized SUVs.
But big SUVs -- luxurious or not -- aren't so must-have these days when gasoline prices seem volatile.
And sporty luxury roadsters such as the BMW Z4 and Porsche Boxster seem to be falling out of favor with U.S. consumers, with sales in the segment down 3 percent this year, despite strong demand for the restyled Mercedes-Benz SLK.
A U.S. light-vehicle market that climbed 15 percent in the first six months of this year -- defying a string of mostly disappointing economic reports -- is producing winners and losers among key product segments.
Market segments that have outpaced or matched the industry's sales growth this year include alternative-powered vehicles, minivans, small crossovers and traditional SUVs such as the Jeep Grand Cherokee, Ford Explorer and Nissan Pathfinder.
Small pickups, mid-sized crossovers and large, traditional SUVs have lagged the industry's growth this year.
Cars outpace trucks
Overall, cars have gained ground this year, with sales up 17 percent, while light trucks have lost share with a sales gain of 13 percent.
The mid-sized car market has grown 21 percent this year, Automotive News Data Center figures show, helped by revamped models such as the Toyota Camry, Chrysler 200 and Volkswagen Passat.
The small, value-priced car segment -- including the Toyota Yaris, Kia Rio and Chevrolet Sonic -- has surged nearly 80 percent, helped by the spring rise in gasoline prices.
Despite indications that the U.S. economy is slowing, the healthy increase in sales of full-sized vans and full-sized pickup trucks shows the economy is indeed slowly recovering, analysts say.
Sales of full-sized vans increased 15 percent through the first half of the year, while demand for full-sized pickup trucks rose 13 percent.
Full-sized vans aren't "sexy," said Ed Kim, an industry analyst at AutoPacific in Tustin, Calif., but traditionally, he said, sales of full-sized vans "go in lockstep with economic health."
"When the economy is not doing good, fleets don't buy vans; but when things start getting better, they start buying more of those types of vehicles," he said.
Similarly, full-sized pickup truck demand, which is often tied to the housing market, is another indicator of the state of the economy, Kim said.
Dodge Ram deliveries have climbed 24 percent this year, and Nissan Titan volume has jumped 20 percent.
Through June, sales of Ford's F-series pickups, for instance, were up 14 percent.
Ellen Hughes-Cromwick, Ford's chief economist, says the housing market and the pickup segment are "joined at the hip." In May, new-home sales rose to their highest rate since April 2010. Sales of single-family homes were up 7.6 percent from April and rose 20 percent from May 2011, the Commerce Department said last month.
Sales of vehicles featuring alternative power sources also jumped during the first six months of the year as gasoline prices rose.
The segment, which includes traditional hybrids, plug-in hybrids and fully electric vehicles, posted sales growth of 71 percent through June.
The Toyota Prius led the segment with 126,654 unit sales, a 90 percent increase over last year. Toyota's recovery from last year's Japan earthquake and the addition of several new models under the Prius nameplate contributed to the sharp rise.
With 37 hybrids for sale in the United States, Toyota Division General Manager Bob Carter said, the segment is heating up.
"Prius is the market," Carter said. "Prius is doing exceptionally well and is ahead of track. We're enjoying that positioning, and more competition helps expand the market."
The Chevrolet Volt also sold well, with a 221 percent increase in sales through June. With 8,817 units sold during the first half of the year, GM has sold more than it did all of last year.
While the spring run-up in gasoline prices helped fuel sales of the Prius and Volt, the large SUV segment has lagged the overall market with volume up just 2 percent.
The overall SUV segment saw sales rise 10 percent, led by the lower-midrange segment featuring stalwarts such as the Grand Cherokee and Explorer. Through June, Grand Cherokee sales climbed 38 percent. Explorer sales rose 18 percent.
The minivan segment -- abandoned by some automakers in recent years -- may be beginning to benefit from a shift in drivers' perception of the historically unhip vehicle.
Minivan demand has climbed 16 percent this year. The Nissan Quest led the way with a 107 percent jump in sales, followed by the two Chrysler Group minivans -- the Chrysler Town & Country, with a 25 percent sales gain, and the Dodge Grand Caravan, with a 21 percent sales gain.
Kim, the AutoPacific analyst, said the increase in volume may signal the start of a shift in the decline of the minivan's share of the market. The oldest members of the millennial generation are now starting to have families, he said, and they're looking to purchase the most practical vehicle possible, and that's the minivan.
While the minivan thrived among baby boomers, Gen X drivers rejected the vehicle when they started raising families because "that's what their parents drove," Kim said.
But the oldest of the Gen Yer's have begun to rear children, he said, and they care more about utility than image.
"Gen Y doesn't really care about vehicles in general; they're far more excited about other things like technology, smartphones and all that other stuff," Kim said. "What that means is that they're not really as concerned as Gen X was about the image of the vehicle they drive. So, the car is a tool to many of these drivers."
(Source: Automotive News, 07/14/12)
||Bigger Sales, Smaller Margins
As sales rebound from last year's earthquake-constrained levels, dealerships' new-vehicle revenues are soaring.
But there's a wrinkle in the good news: Since the second quarter began, many dealers say gross profit margins per new vehicle sold have been falling back to more normal levels, down from the inflated levels of a year ago.
Last year, with few popular Toyota, Honda or other Japanese brands available, dealers were able to command prices close to sticker. That's not true now.
Dealership profits remain high as expenses remain under control and higher volume softens the reduced per-vehicle gross profit.
The slide in new-car margins is "not enough to really get us worried, since we have another two quarters to go, but it's definitely weaker than it was last year," says Morrie Wagener, owner of Morrie's Automotive Group in Long Lake, Minn., which sold about 17,000 new and used vehicles last year. His 10 stores sell Bentley, Maserati, Mazda, Ford, Lincoln, Kia, Subaru, Cadillac, Hyundai and Nissan.
He says his per-car profits are down on average by about $150 per vehicle.
Customers who were willing to pay top dollar last year, when Japanese brands were short of inventory, are looking for deals now. On average, consumers are paying $500 less for a new vehicle today than a year ago, Kelley Blue Book says.
That widespread drop sent margins at Rick Case Automotive Group in Fort Lauderdale, Fla., down in June from year-earlier levels. Rick Case, CEO of the 15-store group, estimated that margins dropped by $300 to $400 per vehicle for Honda and $100 to $200 for Hyundai and Kia.
"Last year, when we couldn't get Hondas, our unit sales were down dramatically, but our margins were way up," Case said. "This year our volume is way up but the margins are down dramatically from where they were last June. Everybody has got more inventory."
Phil Porter, who owns three Subaru stores, in Florida and Connecticut, said: "When people cross-shop, they expect more for their trades and larger discounts." He said those expectations are fueled in part by other makers' "significant incentives."
Paul Taylor, chief economist for the National Automobile Dealers Association, which tracks dealership financials, said rising inventories, manufacturer incentives and falling gasoline prices are contributing to lower new-car margins.
Retail gross profit for new cars in April, the most recent month for which NADA has data, dropped noticeably -- but by less than $100 -- from year-earlier levels, Taylor said.
"And that was a month when many inventories were still tight. That's no longer the case," Taylor said.
For June, he said, "I would not be surprised if it's down by a couple of hundred (dollars) when there is an excess" of inventory for most manufacturers and for most models.
As inventory levels climb -- to a 58-day supply as of July 1 -- dealerships are discounting more, he said. Falling gasoline prices have undercut dealerships' ability to hold prices on small vehicles.
Manufacturers' stair-step incentive programs, which pay dealers escalating bonuses for meeting unit-sales targets, boost revenue when targets are achieved but also can contribute to sharp reductions in new-vehicle gross profit, Taylor said. If dealerships cut prices to try to hit stair-step targets that they eventually miss, he said, "you've simply sold the vehicle at a loss."
Both Wagener and Case say today's new-car margins are on par with those of June 2010, a more normal comparison point than last June when the effects of the March 2011 Japanese earthquake distorted results.
Beau Boeckmann, president of Galpin Motors Inc. in North Hills, Calif., said, "It doesn't matter where we turn; we are definitely seeing pressure on margins, particularly at our Honda store. And we are seeing the same old low-ball pricing from other dealers online. There is more margin pressure on import stores everywhere -- Jaguar, Aston Martin, Ford."
Galpin Motors sells Ford, Aston Martin, Jaguar, Honda, Lincoln, Volvo, Lotus, Subaru, Volkswagen and Mazda.
Boeckmann says the drop in margins has been accelerated by automakers' "turn and earn" sales programs. "There's an emphasis on that more than ever, so dealers are trying to sell as much as they can as fast as possible. It's not all bad from a manufacturer perspective, but from a dealer perspective there is pressure on profit margins."
(Source: Automotive News, 07/16/12)
||Subprime Car Loans Return to Favor Among Auto Lenders
Consumers without top-tier credit are finding it easier to get new car loans, as banks and other lenders are lowering the scores needed to qualify.
While that means additional sales for automakers, and enables more motorists to get into new cars and trucks, it raises questions as to whether lenders are falling into the same risky lending practices they followed before the recession.
"There's a lot of lenders now that are into the subprime business," said Jody Lee, sales manager at Taylor Chevrolet in suburban Detroit. "What used to be a good score at a 650 or 700, now 550 is a good score."
During the first quarter of this year, total U.S. car loans totaled $52.5 billion. That's 49 percent higher than the same period in 2009 -- the recession's low point -- according to Equifax's National Consumer Credit Trends Report.
Also during the first quarter, the average amount financed on new vehicles rose by $589, to $25,995, and for used cars by $411, to $17,050.
Furthermore, buyers are stretching out payments for longer terms: The average length of new- and used-vehicle loans jumped a full month during the first three months of this year, to 64 and 59 months, respectively.
More loans and looser lending restrictions have helped boost new car and truck sales to levels not seen in four years. Estimates call for 14 million to 15 million vehicles to be sold in the U.S. this year, about 30 percent higher than in 2009.
"We've certainly seen the market loosen up for subprime," said Melinda Zabritski, director of Automotive Credit at Experian, a consumer and business credit reporting firm.
"We're seeing it very close to what it was in pre-recession levels, but those days we probably will not return to. I think you'll still see the loans themselves a little more conservative."
Bank risk professionals expect a lending increase to borrowers with less desirable credit. The analytics company FICO polled 192 risk managers at banks throughout the U.S. last month and found that half predict growth in subprime auto loans will lead all other sectors for 2012.
It's easier for banks to loan money when interest rates are low and the rate at which banks loan money to one another is close to zero percent. That's one reason subprime auto lending is already on the rise.
Room for subprime to grow
Subprime consumers generally have credit scores of 640 and below, though cutoffs vary by lender. Scores range from 300 to 850; people with scores above 720 are generally given favorable interest rates, because they are seen as more likely to pay their bills.
The average credit score for people financing a new vehicle remained substantially higher than subprime during the first quarter, but it dropped six points, to 760; for used vehicles, the average credit score dropped four points, to 659, according to Experian Automotive's analysis.
Experian -- one of the major credit reporting firms -- expects the average credit score for new-car buyers could fall as low as 750. That estimate is comparable to credit scores during the first quarter of 2008 -- just before the collapse of the economy and auto industry -- when credit scores averaged 753 for new-car buyers and 653 for used-car buyers.
The subprime category typically comprises about one-quarter of the new-vehicle finance market, Zabritski said. That explains why the average credit score for new car loans is still higher than the subprime average. But there's still room for the subprime category to grow.
The number of vehicle loans made to people with less-than-desirable credit jumped 11.4 percent this year.
Lenders are not only loosening their leashes, but more subprime customers are also seeking out auto loans. Those subprime customers, however, aren't getting the rates they could, said Hank Hubbard, president of the nonprofit Communicating Arts Credit Union in Detroit, which helps those with poor credit refinance loans at better rates. Many, he said, are paying 25 percent a year.
"You could argue from a social perspective that disadvantaged people paying 20 percent interest rates is not such a good thing," said Edmunds.com CEO Jeremy Anwyl, "but from a credit perspective, it's not a bad practice."
Consumers 'have a choice'
Hubbard said for the past few years, many of the credit union's customers who have credit scores below 640 had the impression they would not be approved for an auto loan -- or would be approved, but only with a sky-high interest rate.
"People don't realize they have a choice," Hubbard said. "(The lenders) are taking people with decent credit and charging them high amounts." He points to a story of Aaron McIver of Hazel Park, MI, who was saddled with a six-year used-car loan with a 24.95 percent annual percentage rate. He had a monthly payment of $619 and was on track to pay as much in interest as he would for his 2005 GMC Yukon. CACU refinanced him twice and lowered the monthly payments to $386.
(Source: The Detroit News, 07/23/12)
Daily Sales Tip: Educate Your Clients
Your prospects will not know all they need to know about your solution. To help them understand your solution, you must ask good questions and then listen carefully. You have to first understand their needs before you can educate them on the benefits you can offer.
Although for many sales professionals it's difficult to be quiet, great sales professionals are great listeners. When you listen to clients' needs more than you're thinking about what you want to sell, they will see that you care.
You want to build trust and to be seen as a consultant -- this approach gains the respect of your client. They value what you have to say because you cared enough to ask the right questions.
Source: Sales trainer/manager Stu Schlackman