Sales Forecasts

April seems to be positive sign for used-car market

CARY, N.C. - 

When it comes to used-car prices, the sky might not be falling after all, if indications from a Manheim report bear out. 

The auction company’s index measuring used-car prices increased for the first time all year, and the used retail market buzzes along at a solid clip.

The Manheim Used Vehicle Value Index came in at 124.7 in April, which was up 1.6 percent year-over-year. According to a report accompanying the index, wholesale prices climbed 0.5 percent from March on a mix-, mileage- and seasonally adjusted basis.

In an analysis accompanying the index, Cox Automotive chief economist Tom Webb downplayed the concern many analysts have expressed about used-car price declines. 

“Although the Manheim Used Vehicle Value Index increased for the first time this year on a month-over-month basis, used-vehicle values have not collapsed the way many analysts have warned of for more than a year due to expected increases in wholesale supplies,” Webb said. “And in fact, what weakness we have seen is probably more a result of excessive new-vehicle inventory, not used.” 

Edmunds executive director of industry analysis Jessica Caldwell echoed some of that new-car inventory concern in monthly sales day comments provided by the company.

“We’re seeing a dramatic lag in the 2016 model-year selldown. In April, 8 percent of vehicles sold were 2016 models, up from only 3 percent five years ago,” Caldwell said. “Inventory buildup is a top concern of automakers and all eyes are on whether cuts in production are enough to offset expected dips in sales.” 

Black Book index shows rare gain, too

Another one of the indices measuring wholesale vehicle values has seen its first increase in 27 months.

While the April reading of Black Book’s Used Vehicle Retention Index (113.1) was just a hair above March’s (113.0), it’s at least a temporary pause to the gradual downturn that has been ongoing since January 2015.

The index, which is based on Black Book wholesale average values on 2- to 6-year-old vehicles, was at 126.8 that month before sliding for more than two years.

“April saw stronger seasonality trends than what we had been seeing during the last few spring seasons,” Black Book’s Anil Goyal said in a news release accompanying the monthly Used Vehicle Retention Index.  

“There certainly remains a growing concern over rising supply levels, which typically leads to higher depreciation, but with prices on some segments seeing better value, consumers may be more willing to consider used vehicles in some key car segments.”

Spring has been more robust than anticipated, and the strength in car retention has been encouraging, says a spokesperson for the company via email when asked for Goyal's take on whether April was temporary relief or an encouraging sign.

However, prices are likely to move back into the usual summer depreciation, the spokesperson said. 

Used-car retail appears strong

Moving over to retail, Webb — citing data from NADA — said that used-vehicle retail sales (including private sales) climbed 3.6 percent in the first quarter, with dealer sales up even more (5 percent for franchised, 5 percent for independents).

It appears April continued the momentum, based on Cox Automotive’s “channel checks.”

In late April, Edmunds was forecasting 3.6 million used-car sales for the month, up from 3.4 million in March, with a SAAR of 38.4 million for both months.

Meanwhile, ALG was forecasting 3.32 million used-car sales for April, which would have been off 0.8 percent year-over-year. 

Cargo room, vantage point drive SUV interest

CARY, N.C. - 

Consumers' heightened interest in compact SUVs and midsize utility vehicles over sedans is driven by cargo and a high vantage point, rather than the recent drop in gas prices nationally, says Michelle Krebs, executive analyst for Autotrader.

“KBB did a quick poll, not scientific necessarily,” she said during a conference call with the media on Monday. “I keep seeing articles about gas prices driving that trend; not so much, according to this quick poll.”

Shoppers said they were most attracted to cargo area and the high vantage point of SUVs, Krebs said.

Krebs joined Alec Gutierrez, senior analyst for KBB, to provide insight on April’s auto sales results and recent market trends.

“I’ve seen some stories about it being a weak month I think we need to take a breath and put this in perspective. We’re still around that 17 million mark — that’s a very high level,” Krebs explained.

“Since 1980 we’ve only had four years that we’ve been over the 17 million mark. If you look over time, over the last almost 40 years the average is 14.7 million vehicle sales a year, so we’re tracking well ahead of that.”

She pointed out that car sales are down a bit down from forecast, but it’s to be expected at this stage of the cycle.

“This sales cycle has plateaued so we expected some of these dips, incentives remain plentiful and sport utilities dominate over cars,” she said.

In the next couple of years, Gutierrez said he wouldn’t be surprised to see sales stabilize back down to the low-to-mid-16 million unit range.

He explained that the quality of vehicles on the road today is strong. That includes cars built in the last five years and even in the last 10 years that are capable of lasting longer, which impacts consumer demand.

“I think there’s a very real possibility that if manufacturers pull back a bit on production to bring incentives in line, to bring inventory levels in line, we can very easily see the market back into a 16 (million), 16-and-a-half (million) unit range year-in, year-out,” Gutierrez said.  

He also said that he expects manufacturers’ profit margins to remain high.

“We are at a point where margins should be stabilizing pretty soon. In terms of overall mix, I don’t know that you’re going to see full-size trucks or small SUVs really stretch too far beyond where they’re at today,” he said. “In fact, if you look at the numbers from a growth perspective, over the last couple of years, we saw compact-SUV sales up in the double-digit range. We had years where sales were up 10 percent, 15 percent, 20 percent.”

So far this year, small SUV sales are only up about 5 percent and trucks are up similarly — about 5.5 percent, according to Gutierrez.

“Midsized cars are still declining rather rapidly; they’ve got about a 20-percent drop year-over-year,” he said. “I think you’ll start to see those margins stabilize as the growth in trucks and SUVs hit the peak and the decline in midsize and small cars hit the bottom.”

Gutierrez said that he predicts some degree of stabilization this year in terms of segment mix and market share.

“One thing I would add about profit margins is that it was something not paid much attention pre-recession and yet the car companies, especially here in Detroit, are laser-focused on profit margins, even more than volume these days,” Krebs added.

She said manufacturers have since shifted focus more on profit margins rather than all-out vehicle sales volume.

Group 1's Rickel talks trucks, residuals & more

CARY, N.C. - 

Consumers' increased interest in both trucks and SUV’s over sedans is a shift the industry will have to wrestle with even more this year, says John Rickel, senior vice president and chief financial officer of Group 1 Automotive.

“The overall industry, if you go back two years ago, had a 50/50 split between cars and trucks. Last year it got to 60/40 and this year could be 65/35 — that is a massive, massive shift in consumer preference,” Rickel said during  Group 1’s presentation at the Bank of America Merrill Lynch 2017 Auto Summit in New York last week, a webcast of which  Auto Remarketing viewed.

“Trucks and SUV’s are continuing to go from strength to strength. There’s a lot of customer demand there.”

He points to lower and affordable gas prices as the primary driver of the shift.

“If you can have the optionality of a bigger package — basically what a truck or SUV offers of you — most consumers are opting for that and the industry is struggling to catch up with that switch,” he said.

Used-car sourcing

During the presentation, Rickel said his group’s top source for used-cars are customers’ trade-ins.

“When we’re under pressure on the new vehicle sales, we’re not selling as many units — we’re not getting as many trades, and we have to go out to auction to supplement,” he said.

One downside,  Rickel said, is that going to the auction to buy inventory can be more costly over time, after factoring in all of the added expenditures dealers incur.

“You’re going to pay a little bit more, you’re bidding against other dealers, you pay an auction fee and you’ve got transportation costs,” he said.

Residual trends in segments 

In regards to sedans, within the used-car market in particular, there’s currently some pressure on residuals, according to Rickel.

“A lot of leases were written three years ago and that’s were a lot of volume is coming back,” he said. “We’re seeing a number of our OEM partners that have had to warn on residuals. You’re seeing them pull back somewhat on leasing.”

Rickel said he isn’t too strained about the residual values of trucks and SUVs.

Compared to sedans, trucks have a longer life and a number of consumers of have second order uses for them, he said.

In his 30 years of experience and the lease cycle he has seen, it has been rare that “you get a big, big falloff in truck residuals, so I’m less concerned about that,” Rickel said.

Specifically, if the rebound of the housing industry continues, he said it’s likely that construction workers use of trucks will increasingly secure their current standing in the market.

Rickel also added that if an infrastructure program comes from the Trump administration, it will presumably solidify truck sales as well.

Tesla’s used market performance surpasses GM and Ford

CARY, N.C. - 

Pre-owned Tesla Model S vehicles sell notably faster than some of its U.S. counterparts’ best-selling used models, according to Autolist

The firm recently released a study that delved into used Tesla vehicles’ overall market performance relative to those of General Motors and Ford.

The pre-owned Model S averages 87 days on market, 5 percent below its peer group, reports the buyer intelligence firm’s study titled, Changing of the Guard: Tesla vs GM & Ford. That peer group includes the Audi A7, Porsche Panamera, BMW 6 Series, Mercedes-Benz CLS, and Lexus LS 460.

The top used models from GM and Ford — the Ford F-150, Chevrolet Silverado 1500, Chevrolet Malibu and Ford Fusion — spent  between 88 days and 104 days on the market.

Additionally, the Model S also has higher pre-owned prices relative to expectations than top-performing GM and Ford vehicles.

Prices of the Model S have trended between 3 percent and 5 percent above expectations for the past year.

Meanwhile, prices for the top-performing used GM and Ford models have trended within 1 percent (above or below) expectations throughout the past year,

To compile this study,  Autolist’s analysts took a look at more than 10 million vehicles from April 2016 to January.

“One thing important to understand about our study is — why we think its impactful — is because it’s a comparison relative to a peer group. And that’s a really important element of this analysis because if you’re just comparing raw numbers overall, you can control a cross segment,”  Alex Klein, vice president of data science at Autolist, said in a phone interview with Auto Remarketing.

“But what this is really about is ... Tesla’s performance relative to its competitors and Ford and GMs performance relative to its competitors. And when you think about things through that lens, that is really what drives brand perception, market value, investment financials, and so on and so forth.”

With the next Tesla model — the Model 3 — set to debut later this year, Klein said the brand's performance in coming years could be determined by the reception of this model, which would be its first mass-market vehicle.

“They have thus far just been a luxury market loyalty group,” he said. “And so when you introduce a mass-market vehicle at scale, there are a lot of potential benefits to getting more people involved with what is an incredible brand at a baseline level.”

According to a J.D. Power report released last month, drivers who purchase the brand’s lowest-price sedan are less likely to be comfortable with any technology-related snags.

Klein said, “Getting the Model 3 involved will get more people to engage with the Tesla brand and could potentially even further accelerate their performance relative to competitors as more car buyers are able to move from a traditional petroleum powered car to an electric vehicle.”

He said Tesla customers are likely to become interested in buying EVs over the long-term, which again has benefits for Tesla, but could also have benefits for other EVs on the market in the future, too.

“When you are buying a Tesla you are buying a next-generation automobile. There’s a perception that people are pushing the bounds of technology and they are being part of the forerunners of next-generation technology whenever they step foot in a Tesla,” Klein added.

More info on the study can be found here

 

Sedan sales falloff more damaging to creditors than dealers

CARY, N.C. - 

Following the first-quarter, the growing demand for light trucks over cars will continue to be noticeable, but this will likely be more of a quandary for creditors rather than dealers, says National Automobile Dealers Association chief economist Steven Szakaly.

“The falloff in those sedan prices and then the returns of those leases are much more of an issue for finance companies than they are actually for the retail body,” Szakaly said during a media conference call on Wednesday where he and NADA chairman Mark Scarpelli shared insights on the overall economy following the first quarter.

Sedans have lost about 12 percent market share so far this year, and trucks have gained a little above 7 percent, according to Szakaly.

“This is just a continuing story that we see consumers switching to the utility of crossover vehicles, sport-utilities and other light trucks — choosing those over the sedan segment,” he said. “The used-car business remains strong. Sedans are under pressure and clearly we’re seeing that sort of used-car pricing starting to certainly become more negative as a lot of these off-lease vehicles are coming in, but these are manageable issues I think for this industry.”

Szakaly predicts overall new-vehicle sales will total 17.1 million vehicles this year.

“We have economic growth that continues to be what we say is moderate. We are looking at growth here in the first quarter right around 2 percent, forecasting 2.1 percent — still below trend and still below what we’d like to see in terms of economic activity above 2 and a half or even closer to 2 percent,” he said. “What continues to be a net positive is employment, employment growth continues to be strong with plus 200,000 thousand jobs being created in January and February.”

Though the total number of U.S. jobs have seen an increase in recent weeks, wages themselves have remained stagnant and that has a significant impact on the used-car market in particular because consistently high wage earners tend to buy new, he explained.

“Slightly on the negative side, we’ve got this lack of wage growth overall and that continues to be one of the fundamental troubling factors," Szakaly said.

"With the economic growth that has continued here since 2009, wages have not been rising and they haven’t kept pace with some of the rise in prices.”

Despite a decrease in the purchase of sedans overall, customers who can afford their desire for small luxury vehicles are likely to make a purchase this year, according to a recent Jumpstart Automotive Media study that analyses consumers’ car shopping behavior, as well as what segments of vehicles are either gaining or losing traction.

Sedans within luxury-vehicle segment sales grew 7 percent from 2015 to 2016, and shopper interest for midsize and full-size luxury sedans rose over 10 percent, according to the study.

“As long as people are working they are going to be looking at buying new vehicles and used vehicles,” Szakaly said.

Pressure building on ‘fair gap’ between new & used retail prices

CARY, N.C. - 

There remains a “fair gap” and “a good amount of play between” the typical retail price between a new vehicle and a used or even a certified pre-owned model.

However, Kelley Blue Book senior analyst Alec Gutierrez is seeing trends that are putting pressure on his current assertions.

Gutierrez mentioned during a call with the media earlier this week that the average incentive figure is above $3,500 per unit. ALG pinpointed incentive spending at $3,511 percent unit in March, climbing by $415 from a year earlier.

So the difference between similar models that are new versus nearly-new, CPO or whatever moniker a dealership salesperson might use is “tightening every day with incentives and dealer discounts,” Gutierrez said.

“I would expect to this trend continue,” he continued. “Used cars are going to come back in greater and greater volumes. Manufacturers are going to have to decide if they’re going to keep using incentives on the new-car side to maintain some form of competitiveness.

“Certainly if interest rates rise, that will shake things up even further,” Gutierrez went on to say.

And speaking of those interest rates, Edmunds mentioned that its analysis showed the average APR on installment contracts for new-vehicle deliveries in March reached 5.02 percent — the highest reading in seven years. This figure is up from 4.87 percent in February and 4.80 percent in March of 2016.

Edmunds executive director of industry analysis Jessica Caldwell pointed out the last time interest rates for new-model sales crossed the 5-percent mark was in February 2010.

“With high incentives, record inventories and interest rates at the highest we've seen in seven years, we're seeing a lot of signs right now that the tide is turning for the auto industry,” Caldwell said. “The training wheels that were put in place during the recession are coming off, and the industry is now being challenged to see if it can find the right balance on its own.

“While we’re not facing uncharted territory from a historical perspective, it will be interesting to see how the busy spring selling season unfolds as we navigate toward a more a normal pattern,” she added in analysis delivered to Auto Remarketing.

And, of course, the more levers automakers pull to keep new vehicles from piling up in inventory more than they already are, the more the potential impact on the used-vehicle market. The American International Automobile Dealers Association reported that average length of time a new model sat on a dealer’s lot hit 70 days in March — the longest stretch of time since July 2009.

“The industry’s performance in March suggests that sales may be plateauing,” AIADA president Cody Lusk said in a news release. “Now is the time for dealers to tighten their operations.”

ALG chief economist Oliver Strauss added in another news release, “Hefty incentives have negative impacts to resale values, and that can be even more potent in combination with a heavier mix of leasing being used across both the mainstream and luxury segments.”

During the media conference call, Autotrader senior analyst Michelle Krebs alluded to the segment of the retail equation likely to be most benefitting from the jostling between the new- and used-vehicle arenas — potential buyers.

“That adds another layer of complexity. Do you buy the new car or the nearly new car? There’s incentives being offered on some of the certified pre-owned vehicles. It’s going to take some really close shopping to get the best deal, and there are great deals and improving deals out there,” Krebs said.

6 factors expected to impact UK auto market most

LONDON - 

Analysts who compiled White Clarke Group’s United Kingdom Asset & Auto Finance Survey 2017 say that the U.K. finance market has been resilient in the face of historic changes in the past year, but challenges will remain in 2017 and beyond.

The firm noted its survey points to a series of key factors that will have the greatest impact on the market, including:

• Brexit

• Legislation

• Vehicle sales (new and used)

• Residual values growing demand for PCH

• New technology and innovation

• P2P lending

“The first and most encouraging point to note is that the asset and auto finance market not only continued to grow in 2016, in spite of fears of what might happen in the aftermath of the vote to leave the EU and wider concerns about the global situation, it has carried on growing into 2017 and shows little sign yet of slowing,” White Clarke Group chief executive officer Brendan Gleeson said in the report.

“Nonetheless, there are genuine concerns about the potential effects of Brexit, even though the Article 50 starting pistol has only just been fired and the UK won’t be exiting the EU until 2019,” he continued.

Gleeson went on to say, “One outcome is that auto finance deals are expected to remain very competitive. Dealers need to ensure customers genuinely understand the benefits of finance. Keeping up with developments in finance technology is paramount.”

The complete survey report can be downloaded here.

White Clarke Group’s 20th annual examination of global leasing

LONDON - 

This week, White Clarke Group released its 20th annual Global Leasing Report, what the company contends is the only guide to the top 50 leasing markets in the world, summarizes leasing volumes and other market trends.

Officials highlighted the report reveals an optimistic industry outlook with positive growth and continued confidence.

White Clarke Group calculated overall global volumes reached the $1 trillion milestone as leasing “finally shrugged off the effects of the great recession, with growth in the industry outperforming that of the overall economy.”

The report showed North America remained top of the world’s largest leasing regions, increasing its lead on Europe, and the United States remained the world’s largest leasing market by double-digit growth.

Analysts said Europe performed well as its two largest and most mature leasing countries, U.K. and Germany, continued to improve, with the U.K. achieving a 14-percent increase. The rise within both of these markets was driven in part by auto finance.

White Clarke Group went on to mention Asia showed the fastest growth of any region as China continued its rapid rise towards top place, expanding its leasing market more than 25 percent in one year. Business volumes were driven by infrastructure, manufacturing and a resilient car market.

White Clarke Group chief executive officer Brendan Gleeson said, “2016 brought some significant economic and political events, namely Brexit and the election of Donald Trump as U.S. president. Both events have brought short-term volatility on the global foreign exchange and stock markets.

“It is too early to assess how these events impact upon the economies of the world and the global leasing industry in the medium term, but there may be some resulting economic instability in 2017,” Gleeson added.

The report can be downloaded here. Analysts also discussed the report in a video available here and at the topic of this page.

3.4 million used-car sales possible in February

CARY, N.C. - 

In the first two months of the year, the pre-owned side of the auto industry is pacing towards another year in the neighborhood of 38 million sales.

Edmunds is predicting February used-car sales of 3.4 million units. That forecast would translate into a SAAR of 37.9 million. There were 3.0 million used-car sales in January and the SAAR was the same. 

Offering a milder forecast, ALG anticipates a possible 3.17 million used-vehicle sales this month, which would beat year-ago figures by 7.9 percent.

Separately, in its latest Used Car Market Report, Edmunds said there was a total of 38.51 million used vehicles sold last year, which beat prior-year figures by 0.6 percent.

Franchised dealers sold 11.57 million used cars in 2016, and a record 22.8 percent were certified pre-owned, according to the report. There was also a record  2.64 million CPO cars sold last year, Edmunds said.

​Below is how used-vehicle sales overall have trended over the last six years, according to Edmunds:

  • 2011: 36.92 million
     
  • 2012: 37.58 million
     
  • 2013: 35.83 million
     
  • 2014: 36.24 million
     
  • 2015: 38.28 million
     
  • 2016: 38.51 million 

 

Showroom traffic for used-cars firm, but down for new

IRVINE, Calif. - 

Car sales in December closed exceptionally strong because there was likely a pull forward effect, especially given a number of attractive incentives offered across the industry.

January may be suffering a bit of a hangover after the impressive deals seen at the end of last year, according to, Alec Gutierrez, senior analyst for Kelley Blue Book, and Michelle Krebs, senior analyst for Autotrader

The senior analysts hosted February’s automotive sales day conference call on Wednesday.

It looks as if new-car shoppers are “taking a bit of a breather,” said Krebs.

“Dealers are telling us showroom traffic for new cars is down a bit, and they’re telling us used-car traffic remains pretty firm,” she said.

Gutierrez explained that the year ended with a lot of incentives and that January is generally heavy for incentives as well.

“Industry incentive spend in December was close to $4,000 per unit so there are likely a lot of consumers who jumped ahead to take advantage of year-end closeout sales,” said Gutierrez.

He said the environment across the board is still relatively strong and conducive towards a continued strength.

“The unemployment rate remains very low at below 5 percent and consumer confidence remains relatively steady,” Gutierrez added.

He said he expects January to closeout at a new-car annual selling pace of about 17.4 million units overall.

“For the year, right now we’re bench marking sales likely in the low 17 million, 17.2, 17.3 (range) — somewhere around there,” said Gutierrez.

“I think consumers will still not have an issue getting affordable financing on a new- or used-car purchase or lease for that matter — which remains at 30 percent penetration.”