Wednesday, Mar. 14, 2012, 02:00 AM UPDATED 2:03 AMBy Nick Zulovich
ATLANTA and CARMEL, Ind. -
When last March’s Japanese earthquake and tsunami constrained the supply of new vehicles, wholesale channels stepped in again to fill the role dealers have come to expect.
Leading wholesale analysts cheered the role auctions and other remarketing outlets played as the automotive industry recovered from a wide array of setbacks the horrific natural disaster caused.
“The industry showed good ability to support franchised dealers at a time when they might have struggled to find the kind of cars they would need,” ADESA’s Tom Kontos told Auto Remarketing. “The franchised dealers being in short supply of new vehicles to sell were able to turn to vehicle remarketing industry to obtain vehicles online and in the auction lane that would allow them to have an adequate supply of vehicles to show their perspective customers.
“I would expect us to be able to do that again if the need arose,” Kontos emphasized.
Manheim’s Tom Webb shared a similar tone, approaching it from a different angle.
“Although it is often said ‘you can’t sell from an empty shelf,’ you can, in fact, sell if you know when the shelf will be restocked,” Webb explained. “In this instance, the lack of clarity as to when new-vehicle production would be returning to normal was as harmful as the shortages themselves. With a lack of new-vehicle inventory, dealers focused on the closest substitute — nearly-new used units.
“But, of course, we had a compounding effect in that the normal supplier of these nearly-new used units into the wholesale market (such as the rental car companies) did not turnover their fleet since replacement models were not available,” Webb continued. “And then, on top of that, we had a run up in gas prices, which made the new vehicle inventory in shortest supply (small cars) all the more desirable.”
As Webb acknowledged, supply problems — already evident because OEMs slowed production stemming from the recession — forced dealers into difficult choices when they walked the lanes or scoured inventory on smartphones and laptops.
Kontos also pointed out, “The tsunami gave a little more headroom for used-car prices to continue to climb whereas I think they would have started to bump against new-car prices in a such a way that it would choke off some of the used-car demand. It would have caused some people to say, ‘At these high prices for used cars, I think I’ll just go ahead a buy a new car.’
“But because the tsunami caused supply disruptions you were forced to accept the higher used-car prices because you didn’t have the alternative,” he added.
And Webb insisted that pricing pressure became even more prevalent when dealers sought inventory that could be certified.
“It wasn’t exactly ‘finding’ units that was the problem, but rather the price that had be paid to acquire them,” Webb noted. “Dealers used search functions, online auctions and relationships with auction personnel to ascertain what wholesale inventory was currently available and what may soon become available.
“Dealers then had to determine if high wholesale values allowed then enough room to make a decent gross on the retail sale,” Webb surmised.
Now with one year past since the disaster, analysts such as Kontos and Webb will begin to make year-over-year wholesale price comparisons with the tsunami being a major factor.
“I think the biggest hurdle for analysts will be separating the effects of inventory shortages from the rise in gas prices, which occurred at the same time, and from the shifts in the overall economy,” Webb explained to Auto Remarketing.
“My analysis suggests that last year’s run up compact car prices was more the result of inventory shortages (both new and used) and ongoing long-term shifts in consumer preferences, rather than gas prices per se,” he added.
Auto Remarketing posed the same question to Webb as it did to Kontos. How might the wholesale market react now if a similar tragedy happened?
“As is always the case, an active, transparent wholesale marketplace will provide the truest form of price discovery,” Webb responded. “As such, industry participants will be looking to the wholesale market to not only complete transactions, but also provide information that gives insight into the future.”
As was surmised by other analysts and dealers contacted by Auto Remarketing, Japan’s auto sector is geared up to not only completely recover from the disaster, but revive to an even higher level.
Edmunds.com senior analyst Michelle Krebs shared what she called, “a final thought."
“The other impression that comes to mind is how strong and resilient the Japanese people and Japan companies are,” Krebs said. “The industry could have been down even longer but a lot of perseverance and hard work got the plants running again.”
Nissan president and chief executive officer Carlos Ghosn also applauded the resilience not only of the OEM but the residents of Tohoku, one of the hardest hit areas that were part of more than 20,000 deaths and billions of dollars in damage.
“Despite the challenges of the recovery, Tohoku can demonstrate how Japan will rise to meet both sudden disasters such as the earthquake and the longer-term economic and demographic challenges,” Ghosn insisted.
“At Nissan, we are fully committed both to the recovery of Tohoku and to Japan’s future,” he continued. “The kanji character chosen in Japan to symbolize the year 2011 was kizuna, which can be translated as ties that can bind a family, a nation, or even a company together.
“The response to the disasters of one year ago powerfully underscored the strength of those bonds, while this anniversary is a moment to reflect and mourn those who perished, while reaffirming our kizuna ties to those who survived and are still in need,” Ghosn concluded.
Editor’s Note: This report is the last in Auto Remarketing’s series, Japanese Tsunami: One Year Later. Previous reports gave perspective on the overall impact, as well as the view from dealers and OEMs about the certified pre-owned market and more.