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Tuesday, February 25, 2014

Slowing Down

With US dealership inventories at 88 days on February 1st – 60 days is healthy – we are seeing a possible mismatch of sales relative to production. Yes, there's been bad weather across much of the US, and that kept shoppers away. This past week, though, I visited a half-dozen dealers while car shopping and used that as an opportunity to listen to them. What I heard suggests this is not a temporary blip.

...deals are on the way: if I could put off buying a car, I would...

First, the factory is hiking dealers' sales targets, and getting pushback: late 2013 is as good as it's going to get, and no, we aren't likely to do better. Of course every dealer wants a lower target, and they rightly fear the "ratchet effect" of overperforming leading to higher targets, even if their success was a result of idiosyncratic factors, such as hiccups at a local competitor or a sales blitz that worked in volume terms but not in profitability so won't be repeated. Still, my reading is that dealers aren't seeing the same sort of foot traffic, and they don't think it's just the weather. Furthermore, that is consistent with other macroeconomic indicators such as wage growth, interest rates and housing. Growth is anemic.

Second, supply is up both because new capacity is coming onstream (Honda and Mazda in Mexico, for example) or is available because of the weak yen (Toyota is again making money on exports from Japan, and has a lot of capacity there relative to the current size of the domestic Japanese market, which is also facing a big hike in sales taxes). That's bad news if there's in fact a slowdown, or at least not an increase, in sales. Oh, and neither Honda nor Toyota has seen any uptick in their market share this past year.

...[other indicators likewise show] growth is anemic...

Then there are new models, with incentives to make way for the old. As a result a quick scan of Automotive News headlines suggests a number of OEMs in that position. That's an argument for part of this rise in inventories reflecting model changeovers, but that will vary from firm to firm and ought to ease quickly.

Overall, though, my sense is that firms will have to either trim their production plans, and soon, or really beef up the inventories. And if we start seeing more vehicles coming off-lease and out of fleets, then tradein values will make moving the metal a bit more difficult.

So deals are on the way: if I could put off buying a car, I would. Now in my own case I can't, and what I'm seeing suggests I'll opt for a new vehicle over a used one. Yes, if I wanted to spend $23K there are many attractive larger cars out there, lots of BMWs and Volvos and the like at Carmax. But all I need is a car to get me to and from work, and my wife has nixed a relatively inexpensive Porsche Boxster that would do the trick, or even a coupe: with a 2-week-old granddaughter a couple miles away the ruling decree is that I need the option of putting in a car seat...

2 comments:

  1. Oops. The other link:


    http://www.newspressusa.com/public/ViewPressRelease.aspx?pr=39588&pr_ref=4022

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  2. Foot traffic isn't measured as it once was. Consumers spend a lot less time in dealer showrooms these days. In fact, they physically visit dealers a lot less than in previous times, preferring to gather information remotely from their PC or gadget. This somewhat flies in the face of OEM image upgrades, which they think consumers value. Consumers DO value anything they think they get for free, but fancy stuff around a dealership isn't free. The current days supply at dealerships is largely overblown IMHO. If it goes on it for a couple of quarters longer becomes real. Incentive spending by the OEMs actually went down if you believe the charts at the links. TrueCar and KBB publish this kind of info. They don't always match.

    We're going into the spring selling season spurred on by tax refunds. We are looking at a more historical equilibrium between supply and demand in terms of available wholesale inventor,y with the lease returns coming back. These can be an incredible deal if one knows how to shop for them. But then I'm looking at it from the dealer perspective. If I get a bargain at wholesale it doesn't mean I pass the savings of my astute buy along to consumers. After all, in the pre-owned business, "we make out money when we buy the car, not when we sell it." As a dealer you learn how to identify buying opportunities. Ford example, if you happen to recall that BMW put a LOAD of 328i 4 dr.s into subvented leases 3 years ago, you would look for volumes coming back into the market. Anytime a large number of anything show u, it depresses the price at the wholesale end. Retail measures RARELY reflect these market anomalies. BMW will be looking to get these vehicles back into the market at the highest possible price, but they're under time pressure. There will be volumes of other models they subvented 3 years before coming back to the market. As a wholesale buyer I'll scour "run lists" at the various sales to find out where they will be selling quantities. And that's where I'll show up, either in person or online, and prepared to buy inventory.



    Yes, we're in it for the money.

    http://www.newspressusa.com/public/ViewPressRelease.aspx?pr=39605&pr_ref=4022

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