Archive for the ‘Outlook’ Category

New-vehicle sales impact of millennial generation on the rise

Millennials

Selling to millennials taking a front seat.

 

The purchasing power of Generation Y, known as millennials, is hitting new-vehicle retail sales, surpassing Gen Xers for the first time.

And that has significant implications for new-vehicle dealerships’ sales efforts.

“If you [dealerships] haven’t started actively considering how to attract more younger buyers, now might be the time to do so,” suggested Auto Remarketing at autoremarketing.com.

An analysis by J.D. Power shows that millennials accounted for 26 percent of new-vehicle retail sales compared to 24 percent of new vehicles year to date. Purchases by the baby-boom generation still dominate the market, accounting for 40 percent of new-vehicle sales.

Gen Y sales volume is on pace to grow 17 percent for the full year 2014 compared to last year, almost triple the increase of 6 percent in Gen X sales volumes during this period.

Millennials were born in the period 1977-94, Gen Xers 1965-76 and boomers 1946-64.

“As Gen Y consumers enter new life stages, earn higher incomes and grow their families, their ability and desire to acquire new vehicles is increasing,” said Thomas King, vice president of the Power Information Network (PIN), which collected the latest sales data from J.D. Power.

“As new-vehicle demand among Gen Y consumers increases, it will be important for automakers to respond to the needs of these consumers, not only in terms of the vehicle design, but also the marketing, sales and service experience,” King said.

In what kind of vehicles are millennials most interested? Inexpensive compact cars with low cost of ownership and up-to-date technology, Cars.com reported recently. About 70 percent of millennials ages 21-24 and 55 percent ages 21-35 are looking for new vehicles that cost less than $20,000, Cars.com said.

The PIN data also shows that millennial shoppers tend to favor smaller vehicles, with compact and small-vehicle segments accounting for nearly half of all Gen Y purchases.

Gen X shoppers lean toward larger vehicles such as midsize cars and compact SUVs.

For more on the shopping patterns of Generation Y, see “Millennials shopping for car value – and personal expression” on Santander Consumer USA’s Greenlight blog for dealers.

 

June vehicle sales appear mixed, but all signs point to strong 2014

car sales

(Photo: autoblog.com)

 

June new-vehicle sales might have looked like a mixed bag to a casual observer.

Sales were down from May, which was a torrid sales month, but up over June of 2013. And then there were the strong second quarter and six-months’ results and expectations for the year.

All told, analysts suggested, there were signs the industry could have its best year since at least 2007.

“Summer selling season is off to a better start than last year, despite one fewer weekend this June,” said John Krafcik, president of TrueCar Inc. “Strong retail sales and stable incentive spending heading into the heart of summer give us confidence that 2014 will be the best year for automakers since 2007.”

“It’s important to recognize that June sales are being heavily influenced by a quirk of the industry sales calendar,” said John Humphrey of J.D. Power’s global automotive practice. “When combined, May and June retail sales are expected to be up 7.2 percent, compared with May and June 2013, which underscores the continued positive trajectory in growth and overall health of the industry.”

J.D. Power also expected total new-vehicle retail sales to reach 6.5 million for the first half of 2014, a 6 percent increase over the first half of 2013.

“An attractive collection of new models as well as improved affordability due to very low interest rates and lease specials continued to bring customers into showrooms,” said Jesse Toprak, chief analyst for Cars.com. “We expect the rest of 2014 to continue to track above 16 million units.”

The Seasonally Adjusted Annual Rate (SAAR), an industry measure of sales of cars and light trucks, topped 16.9 million for June, which actually was slightly higher than the May SAAR.

Retail sales were expected to be down 10-15 percent from May, according to sources such as TrueCar Inc., Cars.comand Kelley Blue Book, but analysts generally attributed that to fewer selling days. June typically is a slower sales month than May because of summer vacations.

***

Meanwhile, used car sales through the midpoint of 2014 also were expected to increase over 2013, according to a report by Joe Overby, editor at Auto Remarketing.

Overby cited CNW Research’s latest Retail Automotive Survey in which the firm was predicting June used-car sales to be just under 4.5 million units, pushing the six-month figure to 20.33 million. The mid-year mark would be a 0.9 percent increase from the pace of 2013, CNW indicated.

 

– Mark Macesich

The ‘good old days’ for U.S. car dealers? OK, now what?

05-26 GreenLight - The Good Old Days - Part 2_www.soshable.comSecond of two parts

If these are the “good old days” for auto dealers as suggested in last week’s blog post on GreenLight, then those dealers most certainly will be looking for insights into the trends affecting their businesses and ways to take advantage.

But exactly what signs and trends are cited in “The Blue Sky Report” newsletter from Haig Partners dealer consulting firm of Ft. Lauderdale, FLA?

Here’s what dealers need to look for, according to Alan Haig and Nate Klebacha in the report:

Strong profits continuing for public and private dealers. Private dealerships generated an average of $923,248 in pre-tax profit in 2013, according to NADA, a record-high level. Combined pre-tax income for all public U.S. auto retailers was $1.6 billion in 2013, up 13 percent from 2012.

Increasing new vehicle sales per franchise. Thanks to a lower dealer count and rising sales, new vehicle sales per location reached an all-time high in 2013, at 877 per dealership.

Sales growth vs. declining new-vehicle margins. Auto sales appear likely to continue to grow over the next few years, but new vehicle margins have been declining, down 2.6 percent in 2013, due to a number of factors such as the Internet … For the moment this remains a worrying trend for dealers.

Used cars are increasingly important. More dealers are focused on their used vehicle business because of the sometimes stronger profits for used cars, and the reconditioning that also boosts fixed operations. And F&I on used cars can be higher than with new car sales.

Fixed operations are growing nicely. Per NADA data, fixed operations at U.S. dealerships fell 11 percent during the recession but increased the last two years to return to pre-recession levels. … Most retailers believe this growth will continue in the next few years.

Finance and insurance advantages. The average dealership continues to increase its profits from the F&I department. Dealers are offering additional products and doing a better job of selling existing products.

The good old days? Could be – for those dealerships that seize the moment and ride the trends.

See last week’s blog post for more on the megatrends related to these dealer-level trends.

For more details also see “The Blue Sky Report” online.

– Mark Macesich

 

Key trends that could affect 2014 spring auto sales

key trendsFlowers aren’t the only things expected to bloom in the spring. Typically, auto dealers look to spring as the time to boost their sales numbers.

Consumers have usually recuperated from the all of their Christmas spending and are ready to put their tax returns to good use on a new or used vehicle. But with this year’s frigid temperatures and winter storms, sales have been slower than usual.

As a result, the market is taking a few “corrective measures” in order to move new cars, putting pressure on used cars.

Dealers will need to pay close attention to three key trends from AutoTrader.com that could affect sales:

New Vehicle Pricing – Incentives will be the name of the game for new vehicle pricing. Manufacturers are expected to offer attractive pricing and incentives programs to entice shoppers. Why buy a used car when you can get a new one at the same price? Used car departments will have to be competitive on pricing if they want to stay in the race.

Used Vehicle Volume – When customers purchase the aforementioned new car at a great price, they will likely leverage their current vehicle as a trade-in. AutoTrader.com says those trade-ins and “a notable volume of leased vehicles will be returning to dealership lots this year.” The increase in supply will likely cause a decrease in price. And the more affordable the vehicles are, the more demand you will see from used car customers.

Access to Credit – Bad credit is not the stigma it used to be. Industry insiders say that access to credit has and will continue to open up in 2014. With more lines of credit being extended, consumers will, well, consume. Both new and used retail volume should feel the positive affects of newly acquired purchasing power “not seen in several years.”

The spring selling season may appear to be a late bloomer, but there is still time to make a full recovery. Auto dealers will need to focus on the pricing, volume and credit trends that have taken root over the last few months.

With some adjustments in their plan of action, spring sales could blossom and dealerships could reap some great rewards.

For dealer resources and additional information about Santander Auto Finance, visit our page for dealers.

– LaQuenda Jackson

Moving on Up: Dealer Profitability to Slide Higher in 2010, Experts Forecast

by Laurie Giesen

It’s one thing for the auto industry to turn in a better 2010 than 2009, but just how much more profitable will 2010 be? While the start of 2010 remains challenging for many dealerships, the argument can be made for measurably higher profitability this year.

“New car sales are going to grow by a double-digit number,” says Paul Taylor, economist for the National Automobile Dealer Association. “That will help the profitability of their businesses.”

In addition to putting more money in the dealers’ coffers directly from the sales themselves, the increase in new-car sales should add to the dealers’ inventory of good used cars from trade-ins. And more used cars are what many dealers desperately need to boost their used-car business. Other factors pointing to a stronger year is the continued exit of dealerships, which should help the margins of those surviving. And a slightly stronger economy overall should help push the sale of luxury cars, which tend to have higher profit margins than smaller cars.

John Tomlinson, analyst of offline retail sales for New York-based Majestic Research, expects that the number of new cars sold will reach 12 to 13 million this year, up from about 10.4 million new cars sold in 2009. “We expect sales to improve this year, but our projections are tempered by the fact that they will still be nowhere near the 2007 sales figure of 16.7 million,” says Tomlinson.

The NADA is basing its sale increase projections on the fact that many consumers can’t hold off replacing cars much longer. Additionally, improvements in the economy and a decline in corporate layoffs should help consumer confidence enough to boost car says, Taylor says. Also, the fact that housing prices do not appear to be falling continuously should help car sales.

“Most states have seen the bottom to falling real estate values. That is important to car sales, because for the typical family, the household equity is the biggest source of assets,” Taylor says.

Not only should stabilized real estate prices help consumers who want to use home equity loans to fund car purchases, but more importantly, it will help boost consumer credit scores and also give consumers more confidence to buy a new car.

“ Consumers will feel it is okay to borrow money now. When they kept seeing their housing value decline, there was a hesitancy to borrow money for a new car.” — Paul Taylor, Economist, National Automobile Dealers Association

“Consumers will feel it is okay to borrow money now. When they kept seeing their housing value decline, there was a hesitancy to borrow money for a new car,” Taylor says.

Yet, slightly stronger sales in recent months and better cost-containment programs implemented by dealers have resulted in higher average dealer net profits before taxes – and that trend should continue. Net profit for dealerships at the end of the third quarter for 2009, for example, was 1.7% compared to 1.3% for the same quarter in 2008.

“We expect to see that number even a bit higher this year,” says Taylor.Other recent financial metrics for dealerships also show improvement. For example, dealers’ debt-to-equity fell to 1.37% at the end of the third quarter of 2009 compared to 1.5% for the same period in 2008, and return on equity was 21% for 2009 compared to 17.8% for 2008, according to the NADA. Taylor also expects these trends to continue in 2010. The increase in new-car sales should not only help dealers’ new-car business, but also help used-car sales, because for the past year the usedcar business has been held back by a declining surplus of good used cars.

“About 60% of new car sales involve a trade-in,” says Taylor. “An increase in new sales will bring about a badly needed increase in used cars. The drop in sales for the past two years took about 8 million cars out of the used-car market and good used cars have been in short supply.”

Marguerite Watanabe, president of Atlanta-based Connections Insights, a consulting firm, agrees.

“Every dealer wants more good used cars to sell. In the past, they’ve had to go through repo auctions to get inventory. Trade-ins are a lower cost way to your used-car inventory,” she says.

Repair Work
In recent years, many dealers relied on income from service departments to make up for the shortfall in car sales as consumers who delayed new-car purchases spent more on repairing existing cars. While the sales portion of total income will increase in 2010, dealers should continue to see a strong revenue stream from repairs, Watanabe says. And although more auto dealers are expected to go out of business this year, it is expected to be fewer than last year. NADA figures show that 1,772 dealers went out of business last year, and Taylor says he expects about 1,000 more will close down this year. But, he adds, that is good news for the remaining dealers, which will benefit from the diminished competition.

Watanabe warns, however, that the benefit won’t be universal. “It all depends on where they are located,” she says. “Will they pick up customers from competitors that go out of business or will a lot of those customers simply move to the next town?” She uses the example of a mid-size city. If a Buick dealership there goes out of business, the nearby Ford dealership may not benefit if customers simply purchase cars from a nearby town. However, if the nearest dealership is 30 or 40 miles away, customers might rethink their brand loyalty. Also helping dealer profits is the fact that dealers are doing a better job of inventory management and controlling their fixed costs, says Majestic Research’s Tomlinson.

“Dealers have been doing a better job of keeping the right size of inventory on hand,” he says. “If there is an incremental increase in sales, that should roll right to the bottom line.”