Wednesday, February 27, 2013 | Edited by Daniel Moores
||February Auto Sales Looking Positive, But Buyers Paying More
Transaction Prices Up $1,000 Since Last Year
February vehicle sales are heading for another solid month despite headwinds such as economic turbulence created by gridlock in Washington D.C. and a spike in gasoline prices, according to those who track trends on the showroom floor.
The surge in demand is coming despite an ongoing cutback in incentives by automotive manufacturers. In fact, buyers are spending significantly more to drive off the dealer lot than they did just a year ago, industry watchers report.
"All signs of the industry's health are positive right now," said John Humphrey, senior vice president of the global automotive practice at J.D. Power and Associates, or JDPA. "Average transaction prices are up, incentives are stable, leasing is at a healthy level and newly redesigned models continue to make an impact on the marketplace."
The new-vehicle retail selling rate in February remains above 12 million units -- stronger than it was a year ago -- as the auto industry recovery continues, according to a monthly sales forecast developed by JDPA's Power Information Network. Including fleet numbers, the overall SAAR, or Seasonally Adjusted Annual Rate of car sales, is hovering around 15.2 million, the PIN data indicate.
"Demand is increasing, but the automakers deserve credit for doing a much better job of keeping alignment of production and demand." said Humphrey. "This has led to new-vehicle transaction prices that are averaging nearly $1,000 more in February than the same period in 2012 while incentives have remained relatively flat year over year."
Edmunds.com, a website specializing in information about the auto industry, estimates sales of new cars and trucks in February will total 1.2 million, for an estimated SAAR of 15.5 million light vehicles. The projected sales will be a 14.9% increase from January 2013, and a 4.3% increase from February 2012.
"Car sales are persevering despite economic factors on people's minds like rising gas prices and the implementation of the payroll tax," noted Edmunds.com Senior Analyst Jessica Caldwell. "Pent-up demand and widespread access to credit are keeping up car sales momentum."
Jeff Schuster, senior vice president of forecasting at LMC Automotive, said the outlook for 2013 continues to improve, with the selling pace remaining robust. LMC Automotive is increasing its 2013 U.S. forecast for total light-vehicle sales to 15.3 million units from 15.1 million units. The increase is split between fleet and retail light-vehicle sales, with the outlook for retail increasing to 12.5 million units from 12.4 million units.
"The current fundamentals that are driving strong vehicle sales -- pent-up vehicle demand and a stable, recovering economy -- are expected to get a boost by additional positive factors this year," Schuster said.
"An expected recovery in the housing market, and 50 percent more new-model launches combined with an increase in lease maturities should keep light-vehicle sales climbing throughout the year," he added.
Schuster also said stronger sales are encouraging manufacturers to boost the production of new vehicles.
North American light-vehicle production in January 2013 finished at more than 1.3 million units, 7% higher than in January 2012. Production in Mexico has increased by nearly 21% from January 2012, driven by higher General Motors, Ford, and Volkswagen volumes, especially for their most recently launched models. U.S. vehicle production has grown by 9% from January 2012, while Canadian production has declined by 13% during the same period.
Vehicle inventory levels in early February increased to a 74-day supply, compared with 59 days in January. A higher level is typical in February. However, at the current selling rate, inventory levels are expected to rebalance within the next month or two. Overall, there are nearly 3.1 million units currently available on dealer lots or in transit -- an increase of approximately 600,000 units from February 2012.
LMC Automotive's forecast for North American production remains at 15.9 million units for this year, a 3% increase from 2012.
"The current inventory situation and production plan for 2013 suggests that there is enough volume to support the expected increased level of demand, and there remains little risk for an overbuild environment," said Schuster.
(Source: The Detroit Bureau, 02/25/13)
||Cheap, Easy Credit Gives Lift to Leases
Encouraged by cheap and easily available credit, several mass market brands will get more aggressive with leasing this year to boost sales and customer loyalty.
At the National Automobile Dealers Association convention in Orlando last week, Chrysler Group, Buick, Honda, Toyota, Hyundai and Ford cited plans to increase lease penetration. Manufacturers say the low cost of funds means they can offer subvented leases in more segments.
Last year 22 percent of all new vehicles registered in the United States were leased, according to Edmunds.com. From November through January, Edmunds says, the share was 25 percent.
"It seems almost every car has a lease deal," said Edmunds analyst Jessica Caldwell. "A big part of this has to do with the credit market -- it is cheap."
ALG, which sets residual values for the industry, expects the average lease penetration for 25 volume brands it tracks to grow from 15.6 percent last year to 16.2 percent in 2016. That compares with 10 percent in 2009, when the market was in turmoil.
ALG says lease penetration for 12 luxury brands averaged 41.4 percent last year and is expected to grow to 43.4 percent in 2016.
Honda told dealers in Orlando that it wants to raise lease penetration from 26.2 percent last year to 30 percent in 2013. That would put Honda on the heels of the volume-brand leader in leasing, Volkswagen, at 31.4 percent in 2012.
Toyota wants to go from about 19 percent last year to "well past 20 percent," said Bill Fay, general manager of Toyota Division.
Buick wants to drive its lease penetration higher after it rose steadily from 17 percent in March 2012 through the end of the year, when it stood at 34 percent. Buick aims to surpass 40 percent penetration, partly through a 24-month lease deal that includes regular maintenance and other perks. It did not say when it expects to hit the target.
Chrysler Group expects dealers nearly to double the number of new vehicles they lease after Chrysler Capital, the group's new financial joint venture with Banco Santander SA, launches May 1.
Last year leasing accounted for 11.8 percent of Chrysler brand volume, 2.4 percent for Dodge, and 11 percent for Jeep, according to ALG.
Scott Fink, Hyundai dealer council chairman, says Hyundai will push harder into leasing. The brand currently is at more than 20 percent leases.
"With consumers' disposable income down, it's harder to buy a car," he said. "Leasing starts to make more sense."
Ford Motor Co. wants to increase leases for both the Ford and Lincoln brands. Beau Smith, chairman of the Ford National Dealer Council, said leases will be a critical factor if the Ford brand is to regain market share in the United States this year.
"That's a 2013 initiative," said Smith, co-owner of Sill-Terhar Ford in suburban Denver, along with a number of other franchises. "If we're going to be competitive and reach market share goals in the super segment particularly -- Fiesta-Focus-Fusion-Escape -- we'll have to have competitive leases."
According to ALG, Ford's lease penetration rate was 16.4 percent last year, up from 14.8 percent in 2011 and 9.0 percent in 2009.
"It's a re-education top to bottom -- working together to raise the lease percentage number," Smith said.
Franklin McLarty, CEO of the dealership group RLJ-McLarty-Landers in Little Rock, Ark., said he would welcome more leasing from Ford and other carmakers.
"I like the leasing business," he said. "That's a natural cycle for an ongoing relationship between a dealer and a customer to revisit the dealership every several years for a new vehicle. As long as they can hold up residuals. But when manufacturers overproduce and have to use incentives, that's not a good thing."
RLJ-McLarty-Landers owns 25 dealerships in eight states selling 13 brands.
Other luxury brands beside Lincoln also are stepping up their leasing. Volvo's penetration rate was 17 percent last year -- the lowest of any luxury brand and a dramatic drop from 51 percent in 2008, according to ALG. Volvo expects leases to grow to 32 percent of its U.S. sales this year with the launch of its new captive financial arm, Volvo Cars Financial Services U.S., which began retail lending in December.
With its own captive, Volvo has added 24-, 39- and 42-month leases in addition to its 36- and 48-month deals.
Tom Webb, chief economist at Manheim, the nation's largest auto auction company, said leases in 2009 were down 57 percent from the 2007 figure -- a plunge far steeper than the overall decline in new-vehicle sales.
Since then the number of leases has gone up faster than sales, he says -- from 1.1 million in 2009 to 2.1 million in 2011 and 2.5 million in 2012.
And he says the trend will continue.
"When you look at lease penetration rates in terms of new-vehicle sales, something in the low 20 percent up toward 30 percent would be logical," he said. "I think it trends up over time."
(Source: Automotive News, 02/20/13)
||Amid New Car Boom, Used Cars Are Gold
A few weeks ago, Justin Severson put an ad on Craigslist to sell his 13-year old Honda, and within a few minutes an eager and unexpected buyer was on the phone -- a local auto dealer named Doug Waikem.
Mr. Severson drove his Accord to the dealer's showroom two days later and picked up $5,200 in cash. The dealer "gave me a fair price and it was handled within a few days," said the 31-year-old Uniontown, Ohio, resident.
The transaction illustrates a trend rippling through the rebounding U.S. auto market: used cars are so scarce that retailers like Mr. Waikem are scrambling to find suitable vehicles -- and paying top dollar when they do.
"I am spending more time now trying to buy cars than sell them," said Mr. Waikem, who has seven new-car franchises in Northeast Ohio. He parks delivery vans that advertise his purchases at high school sports events and uses a computer program which alerts him whenever local used-car postings appear on Craigslist.
The shortage of used cars stems from the deep plunge in new-car sales between 2008 and 2010, and the virtual disappearance of new-car leases during the financial crisis. As a result, three-year-old cars are now hard to find and even older models are holding their value.
Another factor is a change by the three Detroit U.S. auto makers. To keep factories humming, they once leased tens of thousands of new cars to rental car fleets and then moved them onto dealer lots as used models after a few months.
There are fewer of those vehicles because manufacturers cut excess production capacity in recent years. Cash-for-clunkers rebates also took many older vehicles off the road.
The scarcity has pushed up used car prices, often to the point that consumers who finance a purchase with subsidized interest rates can get brand new vehicles for about the same as a monthly payment required for a late-model used car.
A 2013 Toyota Corolla LE now sells for about $18,000 new and a 2010 model costs about $14,200. However, monthly payments would be about $300 for each, assuming the new-car buyer gets Toyota's 1.9% for 60 months rate and the used-car buyer pays a 5% or higher interest rate.
While new vehicle sales get a lot of attention because of their connection to auto makers, the used vehicle market is far larger. Last year, U.S. used vehicle sales rose 5% to 40.5 million. That compares with new-vehicle sales of 14.5 million, according to Manheim, a subsidiary of media company Cox Enterprises Inc. that runs used car auctions around the country.
In 2012, Manheim sold about 2.5 million fewer vehicles at auction than it did before the auto sales collapse. But the bottom is near, warned Sandy Schwartz, Manheim's president. He sees used car prices falling this year, and a healthier supply of late-model cars coming off leases by December.
"There is going to be a day coming soon when there a lot of cars are going to be dumped on the market," said Mr. Schwartz. "That is going to put a strain on new cars."
Melinda Zabritski, director of automotive credit at consumer credit rating firm Experian, said it is possible used car prices may climb to a point they compete with new cars. But, she says, even if that happens, "that is not going to last long. Now is a good time to trade in your used car if you have one."
High used-car values give buyers more equity on trade-ins and they also make the value equation better for getting a new car, which often has new features and lower financing rates or other incentives that used cars lack.
J.P. Paynter, a general manager in a group of luxury car dealerships in Carlsbad, Calif., said he buys cars from his own customers to help fill his inventory.
Nearly every car traded today has more than 100,000 miles on it, and finding decent used cars means cold-calling owners, even when they aren't thinking of selling.
"We keep track of our customers' payments, and equity, so when it gets to a point where I can say, 'hey, you can trade in your two or three-year-old car and get a new one for about the same payment' we reach out to them," he said.
National Automobile Dealers Association senior economist Paul Taylor expects new vehicle sales this year to rise by more than one million over 2012, to about 15.5 million cars and light trucks. Many people have held on to older cars and now simply have to buy new one.
Easier access to credit and the shortage of affordable used vehicles is boosting new-car demand, too, Mr. Taylor said.
Mr. Waikem, the Ohio dealer, said he is making more money on cars he buys directly from people than those he gets from wholesale auto auctions, and about 50% of the people who sell him used cars end up buying new vehicles from him.
He also uses a computer system to track the equity his customers have in the vehicles they bought new from one of his stores, but doesn't stop there. He also leases billboards near competing car dealerships offering to buy used vehicles.
"Right now, you turn on the news, it is all bad economic news except for auto sales and housing," he said. "It is a combination of some of the lowest interest rates in history, and the highest used car values in history."
(Source: The Wall Street Journal, 02/21/13)
Daily Sales Tip: Know Why You Are Calling
Sounds obvious, but we have all been guilty of making a call just because it was on the list, having long since forgotten why we were calling. Or worse, never calling at all because you aren't sure of your reason.
Make it a habit to keep a note with each person's contact information about where you left off in your last contact and what is the appropriate next step.
The most productive calls are about something you know or suppose the other person wants from you, rather than something you want from them.
Source: Business coach C.J. Hayden