Notes from the International Car Rental Show April 2015

Ruggles/Wards/Bobit Media

I was recently privileged to attend the International Car Rental Show, held at Bally’s Las Vegas. I have attended this show in previous years and always came away with something noteworthy. This year, for the first time, the show included a break out track for auto dealers. While my primary interest was keeping up with all things car rental as they impact residual values going forward, I felt compelled to attend the car dealer sessions. And was I in for a shock.

Pardon the Sarcasm

ruggles/Wards

I am astonished that the new “hot trend” in auto retail is thinking that a car deal should be accomplished in an hour or so. Hell, it takes almost that long to explain how the infotainment system works, let alone the other gadgets in a new vehicle.

How long does it take to go over all of the forms demanded by government regulation, or do we just have the customer sign them without reading them? After all, we want our customers to be happy, right?

The 6 Fluids

As a car owner, the best thing that you can do for your vehicle is to keep it properly maintained. You don’t need a mechanic to check the fluids in your engine, nor do you need a degree to be able to top them off when necessary. By taking a few simple measures and making sure that these six fluids are within proper levels, you can prolong the life of your car. Your owner’s manual will have everything you need to know about maintenance schedules and recommended fluids. For a great running vehicle, here are the six automotive fluids you shouldn’t forget to check.

The PACE of Automotive Innovation

Suppliers are integral to new technology in the auto industry to an extent not true since the early years of the 20th century, when ventures such as Ford began as mere assemblers, not manufacturers. That will be highlighted on Monday, at the 21st PACE "academy awards" for supplier innovation. (For those not in the know, Monday's the opening night of the SAE [Society of Automotive Engineers] in Detroit.)

China's Pending Depreciation

As I prepare to begin grading final exams from my course on China's economy, let me start a series of posts stemming from my teaching this term, and from a lecture (ppt here) that I prepared for the Asian Studies program at James Madison University to my north, in Harrisonburg VA. (It's also my son's alma mater.) Here I focus on China's exchange rate.

96 month car loans and risks in the auto finance sector

With loan maturities of 96 months no longer uncommon, the downside from a recession – that is, higher than anticipated defaults – looms larger. Longer maturies likewise amplify the downside from the return of interest rates to historic averages. If your footprint is auto finance, you can't ignore this: even if you yourself don't directly handle, hold or insure paper, your customers do. So what are the prospects for the next year or two?

tis the season -- or this year, not -- but keep it out of our data

As yet more snow falls, we're reminded ... that it's the start of spring? While this year is colder than any I remember, though not so bad in terms of total snow, it does raise the question of how to interpret economic data. Of course housing starts are down, but they're always down this time of year. Some prices are up and others down, again as in the past. Since it was the most recently updated series -- the new data were released at 8:30 am this morning -- I use the Consumer Price Index as an example.

Promises versus Deliverables: Jeb Bush and 4% Growth

Jeb Bush has set the presidential race pace with a promise of 4% growth. Other contenders, Democratic and Republic, will make similar promises, or perhaps already have – I've not looked. My intent here is to examine the issue, not the man.

In the medium and long run growth rates are about the supply side. Now in the short run demand factors matter, and since we're still in recovery from our Great Recession, we can hopefully have a few years of above-normal growth. My own estimation, taking into account the retirement of the baby boomers, is that we're about 7 million jobs short of where we need to be. Of course the next Administration won't take office until early 2017, and realistically their policies won't kick in until 2018. We're adding jobs at a 2 million per year pace. So if we keep that up, by then we'll be pretty close to normal. Looking at the supply side is thus sensible.

4.0% growth isn't going to happen

Reflections on NADA Week 2015, San Francisco

Ruggles based on a column in Wards
minor additions by Smitka

There was a lot going on in San Francisco in January. The week began with the American Financial Services Association (AFSA) conference. Following that, J. D. Power and Automotive News held conferences on the same day, while at the same time, NADA workshops were in session. There was simply no way to take it all in so I’ll only comment on the high points of sessions I attended.

AFSA:

Notably absent from the AFSA conference was the Consumer Financial Protection Bureau. I got the impression they weren’t invited and wouldn’t have come anyway. Last year, CFPB’s Patrice Ficklin addressed a packed room. Since last year’s event, AFSA commissioned a scholarly study, conducted by the highly regarded Charles River Associates, that isn’t kind to CFPB’s suspect methodology called Bayesian Improved Surname Geocoding (BISG) which CFPB uses to “prove” unintentional “disparate impact” discrimination. One gets the impression that zealots at CFPB see discrimination behind every tree and will stop at nothing to “prove” it. According to the Charles River study as summed up in an AFSA bulletin, “BISG estimates race and ethnicity based on an applicant’s name and census data. AFSA’s study calculated BISG probabilities against a test population of mortgage data, where race and ethnicity are known. Among the findings:

The Current State of Leasing and Residual Based Financing

Ruggles, February 2015

According to the most recent Manheim Market Report, “Lease originations exceeded 3.5 million for the first time since 1999. It will take only a slight increase in 2015 to push new leases above the all-time high reached in 1999.” This is largely the result of Auto OEMs attempting to counteract the negative impact of long term financing, which is also reaching new highs. Both initiatives are efforts by the OEMs to maintain volume and production in the face of rising MSRPs and transaction prices. Increasing finance terms take consumers out of the market for extended periods of time and dramatically decreases the chance the consumer will return to the same dealer and/or manufacturer for their next vehicle.