CNW: Thousands of Independents Close in '08; Conditions Start to Improve for Used Market

By Joe Overby, Staff Writer
January 19, 2009

Email this story Printer Friendly Version

BANDON, Ore. — With many independent dealers lacking such buffers as service and parts departments to help combat slow retail sales, more than 4,100 independent dealerships shut their doors in 2008, according to the latest analysis from CNW Market Research.

Though there still remains some positive news for the overall used-vehicle industry, the number of independent dealerships dropped from 42,800 at end of 2007 to 38,662, marking a 9.7-percent decline for 2008. A lot of these closing and lack of sales are due to the tight credit markets.

And even with fewer independent dealerships, per-store unit volume still shrank from an average of 302 vehicle sales per outlet to 283.2, the company highlighted.

"Without the benefit of other departments such as service and parts, nor the ability to find sufficient lending sources especially for the lower near-prime and subprime customers, most independents found themselves in a financial quagmire," explained Art Spinella, president of CNW.

That said, Spinella offered a bit of good news for the used-vehicle industry, in general, that bodes well for independents, too.

According to CNW's Wish List study, used models moved ahead of new units as far as consumers' purchase preferences, and the 9-percent decline in purchase intention "isn't as bad as it might appear."

"Based on the average odometer mileage of cars 10 years and older (110,000 miles), the share of all used cars of that vintage (46 percent), service histories for those vehicles and other factors, the used-car key market is growing at an significant rate," Spinella pointed out.

"Add easier (not easy) credit approvals, and the larger used sellers such as CarMax could see a return to significant profits in the latter part of spring or early summer," he added.

Specifically, sales of 40 million used units in 2009 might be attainable, barring any unexpected economic collapse, Spinella estimated.

"If independents maintain their share of total sales — about 32 percent — it would translate to 12.8 million deliveries, up more than a million units versus '08," he projected.

Used Prices Up, Sales Softening Slows

Moving on, Spinella pointed out another good sign for the used market: Prices have shown strength during the first two weeks of January for the retail and wholesale sides.

Through Jan. 15, asking prices for both franchised and independent dealers have climbed 3 percent compared to December, he explained. Moreover, actual transaction prices have climbed 7.2 percent for franchised stores, while independents have shown a 3.6-percent upswing.

Year-over-year, franchised dealers are up 0.68 percent in transaction prices, while independents are down 6.6 percent.

"In terms of unit sales, the industry is similarly looking a bit brighter, in some cases only because the rate of decline isn't as bad as it has been," Spinella stated.

More specifically, franchised dealers were on pace halfway through the month to sell 678,000 units for January, a slight improvement from a year ago.

Independents, which are still battling the "full weight" of the downtrodden economy and a credit drought for its core buyers, are on track to sell 556,300 models this month, a 13-percent downturn, according to CNW.

Likewise, private-party sales are off 10 percent, as there are typically fewer credit sources for these types of transactions.

"All in all, even in the dimness of the current economy, the outlook is actually improved. Prices are clearly firming up at both wholesale and retail," Spinella commented.

"Demand is somewhat higher and floor traffic appears to have bottomed out on the CNW Used Car Index," he continued. "Additionally, used-car buyers tend to need a vehicle and can't postpone for as long as new-car intenders."

Fleet Sales Remain Crucial

Under their current structure, fleet and commercial sales continue to be profitable for the majority of the market, Spinella stated. With that in mind, CNW projects that automakers will be aggressive in pushing non-retail sales, including those to the small-business community.

However, even though fleet/commercial sales helped to keep the new-vehicle industry from completely collapsing in 2008, Spinella anticipates a decline in large business and government fleet purchases this year.

A CNW survey of fleet/commercial buyers indicated that large business and government fleet sales will contribute the overwhelming majority of the projected fleet industry sales decline from 4.82 million units to 3.55 million.

More specifically, government sales are expected to fall 665,380 units, a 62.6-percent decline from 2008.

Meanwhile. CNW forecasts that large business transactions will drop 22.4 percent, or 565,175 units.

"With downsizing and layoffs at large businesses, it will be unnecessary for these enterprises to rebuild corporate fleets to pre-2007 levels," Spinella pointed out. "Government agencies will buy at least half as many vehicles as in ‘08."

On the daily rental side, though, with more consumers planning on taking a U.S.-based vacation this year (according to CNW's Wish List study), sales in this segment could spike by late spring.

"Somewhat distressing about these figures is that they offsets pent-up demand which, in turn, will require automakers to beat the bushes through marketing, incentives and new products to draw folks into showrooms," he noted.

For more information, visit www.cnwmr.com.