Sales Forecasts

Used-car sales picture for August, July

CARY, N.C. - 

There are likely to be fewer used-car sales this month than there were in July, but the seasonally adjusted annualized rate should stay in the neighborhood of 39 million units.

Edmunds released a forecast Thursday projecting 3.3 million used-car sales for August, which would be down from 3.4 million in July. The resulting used-car SAAR for August would be 39.0 million, down from 39.2 million in July, Edmunds said.

In a separate analysis on the used-car market, CompetitorPro found that average used-car sales per store at franchised dealerships in its database for July was 58.4 vehicles, with average days to sell at 35.3. The company had total used sales for franchised dealerships in July at 1.13 million.

For independent dealerships, the firm found that average used-car sales per store within its database was 185.3 in July, with average days to sell at 16.7.  Total used sales among independents was 166,400.

The data is based on internal VIN analysis on dealership websites (which are publicly accessible) by CompetitorPro. There were 19,307 franchised dealers in July’s data set and 898 independent dealers.

CompetitorPro counts individual franchises as separate dealerships.

VSC penetration forecast into 2024


Colonnade Advisors offered quite a bullish forecast for the penetration level of vehicle service contract purchased by consumers that should make F&I managers and VSC providers smile now and seven years down the road.

The boutique investment bank and registered broker dealer providing investment banking services to F&I firms and other financial services companies released a new white paper that showed the macro fundamentals in the VSC industry are “compelling,” and the industry demonstrates growth, strong margins and recurring cash flow. Analysts computed the industry already totals $33 billion at the retail level and comprises a large and important component of automotive sales and profitability.

“New entrants and consolidators should enjoy industry tailwinds for several years,” Colonnade Advisors said in the white paper.

The firm highlighted the market size of the “sweet spot” for aftermarket VSC sales is estimated to continue to grow and cyclically peak in 2024. Despite the recent dip in new-vehicle sales, analysts insisted the market for the purchase of VSCs to cover following the expiration of an OEM warranty is increasing.

Colonnade Advisors estimated 85 million vehicles had a VSC attached in 2016 with the penetration growing to 108 million vehicles by 2024.

The white paper pointed out that consumer demand for VSCs is significant. Authors cited other studies that stated an estimated 46 percent of Americans do not have cash on hand to pay for an emergency expense of $400 or more.

“As the average age of vehicles increases and drivers hold their cars longer, the need for protection plans is increasing,” the firm said.

“These vehicles typically outlive their OEM warranties and have higher maintenance needs, creating demand among consumers that are increasingly accustomed to buying vehicle protection products,” the firm continued.

“Dealership margins remain under pressure, and F&I products provide significant profitability,” Colonnade Advisors went on to say.

Analysts went on to discuss another element of the VSC space, insisting the pace of mergers and acquisitions is increasing. Why? Colonnade Advisors noted demand from investors, low interest rates and availability of capital.

“Private equity is attracted to the industry by its high margins, strong cash flow, fragmentation and growth and making platform and add-on acquisitions to existing portfolio companies,” the firm said. “More and more, industry participants are considering vertically integrating, potentially disrupting market dynamics among the pure plays.

“Administrators, seeking to grow revenues and improve margins, are acquiring to increase and protect product distribution, improve scale and capture more of the value chain,” the firm continued.

“Sellers and administrators are bringing the payment plan function in-house. Insurance companies, looking to preserve books of business or enter the industry, seek the acquisition of administrators,” the firm went on to say. “Colonnade Advisors expects strong demand for well-run companies in this industry to continue.”

Colonnade Advisors’ entire white paper that explores trends, growth drivers and M&A in the VSC industry can be downloaded here.

4 reasons why Latin America’s used market is ‘transforming’


New research shows the United States is a model for how used vehicles can be a profitable industry growth segment for other places in the world, including the use of certified pre-owned programs.

Strategic consultancy firm Frost & Sullivan cited four reasons why the used-vehicle market in Latin America is “transforming.”

While noting factors common in the U.S. marketplace, Frost & Sullivan projected the total used-vehicle market in Latin America will reach 22.4 million units in 2022, exhibiting a compound annual growth rate of 3.4 percent during 2016 through 2022. The four reasons for that sharp rise include:

—OEM collaboration with franchised dealerships in order to resolve informality and lack of financing, improve their brand image and equity, and increase new unit sales as customers can use their old vehicle as partial payment.

—Deployment of new apps, mostly in Mexico, Brazil and Argentina, which create opportunities for independent dealerships and individuals selling their vehicles.

—Online disruptors partnering with OEMs, dealerships and financiers to create shared value through data such as customer preferences and new-model reselling patterns

—OEM efforts to promote used hybrid and electric vehicles through certified pre-owned programs designed to ease battery life anxiety among buyers.

“The Latin American used-car market is primed for online disruptors that can offer financing, easy and friendly processes, and limited warranties and maintenance plans to differentiate and add value for customers," said Frost & Sullivan mobility industry analyst Hernan Cavarra.

“The focus of these startups will be to remain competitive on pricing by keeping operational costs low,” Cavarra continued. “Taking advantage of the learning curve from similar business models in the U.S. market, online businesses can expect success in the medium to long terms."

Frost & Sullivan also mentioned several innovative players are helping accelerate market growth in peripheral used-vehicle markets like Peru and Mexico that are “informal, unprofessional, and poorly regulated,” and in large markets like Brazil, where oversupply of new models due to an economic crisis and influx of low-cost Chinese units, restrain used-vehicle sales.

For instance:

—KAVAK offers end-to-end buying and selling of second-hand vehicles in Mexico along with the commitment of selling the vehicle offered by individuals within 30 days.

— has a disruptive business model that promises to sell any used vehicle in an hour and a half or less to any of more than 1,500 dealers that buy it through an online auction. In its first year of operation, the company reported more than $32 million in revenue.

—Localiza, one of Latin America’s biggest car rental companies, has a used-vehicle division that uses smartphone apps, offers good financing options by taking the customer's used unit as part of the transaction, and provides insurance and regular maintenance services.

—Superbid, which specializes in online auction sales, also offers fleets.

—Nissan Mexico offers almost-new and used vehicle eCommerce through its listing-driven website, and has a 154-checkpoint CPO program, financing, warranty, on-demand maintenance and services features, and original spare parts.

“Government regulations, OEM CPO programs, active participation in the market through franchise dealerships, and startup apps for 100 percent used-car sales processes will build trust among buyers and boost confidence in used cars,” Cavarra said.

See here to access more information regarding this Frost & Sullivan analysis.

July used sales expected to climb to 3.4M

CARY, N.C. - 

While it appears new-car sales are continuing to lose steam, Edmunds is projecting that used-vehicle sales in July should climb when compared to the previous month.

Edmunds is estimating that 3.4 million used vehicles will be sold this month, which would compute into an estimated seasonally adjusted annual rate (SAAR) of 39.2 million. For June, analysts had projected that used-vehicle sales would come in at 3.2 million.

Meanwhile, on the new-car side, Edmunds is forecasting that 1,423,097 new cars and trucks will be sold in the U.S. in July for an estimated SAAR of 16.9 million. This reflects a 3.1 percent decrease in sales from June and a 6.2 percent decrease from July of last year.

Edmunds also is estimating that retail SAAR will come in at 14.6 million vehicles in July, with fleet transactions accounting for 13.8 percent of total sales.                                                             

“July is historically a strong month, but with disappointing sales and inventories still building, something needs to give,” said Jessica Caldwell, Edmunds executive director of industry analysis. “A lot is riding on late-summer sales events to help move vehicles before 2018 models start arriving at dealer lots.

“Production slowdowns will help address some of the inventory issues, but consumers may be waiting for automakers to loosen the purse strings on incentives to get them to pull the trigger on making a purchase,” Caldwell continued.

The new-model sales projections are similar from Kelley Blue Book.

KBB is expecting new-vehicle sales to fall nearly 6 percent year-over-year to a total of 1.43 million units in July 2017, resulting in an estimated 16.7 million SAAR.

“The annual selling pace is expected to remain below 17 million SAAR in July, with volume dipping slightly from the levels seen in May and June 2017,” Kelley Blue Book analyst Tim Fleming said. “We’re in the midst of the steady summer sales months when new vehicles tend to stay relatively consistent after peaking during the Memorial Day weekend in May. 

“Kelley Blue Book expects to see sales start to jump back up again in August and September thanks to model-year closeouts and the Labor Day holiday,” Fleming added.

KBB pointed out that July would represent the fifth month in a row where the industry would post an under-17 million SAAR, the longest period since a six-month streak from September 2014 through February 2015.

After a record year of sales in 2016 and seven consecutive year-over-year sales increases, Kelley Blue Book's forecast for 2017 calls for sales in the range of 16.8 million to 17.3 million units, which represents a 1 to 4 percent decrease from last year.

Kelley Blue Book added that analysts expect full-size trucks will likely post the smallest volume decline of the major segments thanks to strong demand from consumers and small businesses.

“New home construction, and the real estate market in general, has been steadily improving and has even surpassed pre-recession levels in some parts of the country,” Fleming said. “A strong real estate market, especially with regard to new home construction, in conjunction with low fuel prices, generous incentives and improved product offerings will help to keep truck sales strong.”

Data analytics provider enhances reporting software to save dealers time & clicks


Dashboard Dealership Enterprises has redesigned its business analytic reporting suite for increased functionality using input from dealer clients.

Executive Eye 3.0, the latest version of Dashboard’s flagship product, offers a variety of graphic display options designed to help dealers easily navigate the program.

New visual enhancements include updated colorful themes, more white space and increased organization.

"Reporting has always been clunky, time consuming; often it’s difficult for dealers to understand how numbers translate into actionable data," Dashboard Dealership Enterprises chief executive officer Josh Blick said in a news release. "Executive Eye 3.0 is a groundbreaking tool that completely changes the paradigm of how a business analytic reporting tool can be used. Instead of spending time compiling reports, managers instantly have actionable data at their fingertips."

In beta testing, Executive Eye 3.0 exhibited a 30 percent increase in dealership usage compared to an average usage of 2.0, according to Dashboard.

The suite’s direct messaging capabilities allow dealers to communicate directly with Dashboard's customer support and other users. The messaging tool’s reports, alerts and comments can all be shared without the need to compose emails outside of Executive Eye.

Additionally, Executive Eye’s Consolidated Doc report allows dealers to instantly combine documents from individual stores into a single report.

Dealers interested in performance comparison can also view key performance indicators from each of their stores side-by-side.

Executive Eye 3.0 is mobile-friendly across all platforms and devices. A mobile application download is not needed to access the software on a mobile device.

Consulting firm discusses ‘used-car time bomb’


The newest report from AlixPartners — whose client roster includes corporate boards and management, law firms, investment banks and other kinds of investors — cautioned the industry that a “used-car time bomb” is about to explode.

AlixPartners explained that it arrived at that dire assertion through a project that began two years ago through what the firm identified as the “CASE” trends that are “completely revolutionizing” the automotive industry — the connected, autonomous, shared and electric vehicles of the not-too-distant future.

AlixPartners released this analysis detailing how automakers, suppliers and other industry players need to evolve their organizations and their partnering approaches to successfully transition to a “new automotive ecosystem.” 

Using several examples, the firm detailed where companies, often relying on traditional auto-industry approaches, are falling behind and why they should consider revamping their operating models. 

The report projected a significant downturn in U.S. new-vehicle sales ahead, to 16.9 million light-vehicle units this year and to a cyclical trough of 15.2 million units in 2019 — partly driven by a “used-car time bomb” of 500,000 more off-lease vehicle-returns in 2017 versus 2016, on top of the 500,000 more units in 2016 versus 2015.

The reports noted these trends will likely be a “double-whammy” to new-vehicle sales, displacing turns to cheaper used vehicles while increasing lease payments on new vehicles as leases get written with anticipated higher residual rates and tighter credit standards.

While dealerships might be turn more used vehicles, AlixPartners also mentioned that as more off-lease vehicles fill the wholesale market, firm analysts are projecting that used-vehicle prices will soften at a rate double the 13-percent drop they believe already has happened since 2014, costing captive finance companies up to $5 billion. 

Beyond just the growth in off-lease volume, AlixPartners spent much effort on looking at how vehicle technology is going to impact which models might roll over the curb more quickly and which ones might need a spiff to get delivered.

On the connectivity front, the AlixPartners analysis pointed to the example of Tesla’s “high-spec” center-stack display, featuring over-the-air upgrades from the company and iPad-like features. Though this feature has been on the market since the 2012 model year, and has garnered strong reviews from consumers, AlixPartners noted that no other major automaker has moved to match the system.

On the autonomous-vehicle front, the AlixPartners analysis found there are now more than 50 major companies now working on autonomous vehicles or full autonomous-vehicle systems, as well as a plethora of smaller companies and start-ups. This “Wild-West” environment will likely result in a handful of big winners, according to the study, but on the other hand, also many disappointed investors. 

The report also mentioned that many of the newer high-tech entrants have completely different “DNAs” than traditional automotive companies, including being used to high returns on capital. Given the “white-hot” competition brewing, the analysis predicts that AV systems-costs could drop 78 percent by 2025. 

On the shared-mobility front, the analysis included a survey of a total of 2,000 U.S. adult consumers that showed just how fast things are changing in today’s automotive world.

The survey polled 1,000 consumers across 10 large markets where both car-sharing and ride-sharing are popular (the metro areas of Austin, Texas, Boston, Chicago, Los Angeles, Miami, New York, Portland, Ore., Seattle, San Francisco, Oakland, Calif., and Washington, D.C.) and, as a control group, 1,000 respondents across the entire U.S. This effort mirrored a consumer survey by AlixPartners in November 2013.

In this year’s survey, consumers in the 10 trend-setting markets said their awareness for virtually all major car-sharing brands (names such as Zipcar, Car2Go and Enterprise CarShare) has decreased, and 21 percent of respondents were unable to name any brands at all. 

By contrast, this year’s survey also asked users of ride-sharing (brands like Uber and Lyft) in those same 10 markets about their intended usage in the next 12 months versus their past usage, and 24 percent said their usage would be more than in the past, versus just 5 percent who said less — an 18-percentage-point difference.

Meanwhile, AlixPartners said just 17 percent of car-sharing users surveyed in those markets said they would employ car-sharing more in the coming 12 months than in the past — versus 16 percent who said they would use that mobility service less in the year ahead.

Moreover, among respondents in the 10 markets, the survey found that ride-sharing was five times more likely to be a top-three transportation mode than was car-sharing (11.6 percent versus 2.5 percent), and three times more likely than traditional taxis (11.6 percent versus 4.2 percent).

In addition, among millennials surveyed in the key markets, 9 percent said ride-sharing has allowed them to postpone or avoid getting a driver’s license — what AlixPartners contends is another indicator of today’s fast-changing times.

Another key finding of the survey, coupled with AlixPartners analysis, is that in the 10 key markets each vehicle used in car-sharing is likely replacing the need for 19 personal vehicles — a decrease from 32 vehicles based on the results from AlixPartners’ 2013 survey.

Meanwhile, according to the same analysis, one vehicle used in ride-sharing is likely displacing four personal vehicles. The report went on to note that both ride- and car-sharing vehicles are typically replacing vehicles driven less than 5,000 miles per year, not typical commuting vehicles.

On the electrification front, the AlixPartners study reveals that China is investing heavily to take a leadership role in electric vehicles. In an example of that, the report noted that Chinese automakers commanded 96 percent of the 2016 market in China for full electric vehicles (not including hybrids), more than double their share (43 percent) for all types of light vehicles. It also finds that of the 103 EVs to be launched globally by 2020, 49 of them will come from China-based automakers.

The report additionally predicts that China is targeting to have two-thirds of the world’s manufacturing capacity for lithium-ion batteries by 2021 (175 GWh of power, or the equivalent of five Tesla “giga-factories”).

Meanwhile, the report recapped that hybrid sales in the U.S. have slowed, from 3.2 percent of the market in 2013 to just 2.1 percent so far in 2017, while plug-in and battery-electrics sales, while increasing, still represent only 1.0 percent of the market. This, says the study, underscores the need for maximum flexibility in both organizations and partnerships to handle the expected, but bumpy, shift to the new automotive ecosystem that’s coming.

Finally, and also in a way on the partnership front, the AlixPartners study determined that private-equity firms have switched, in droves, from being buyers to sellers — most often to “strategics” (companies in the auto industry already), as private-equity-to-strategics deals skyrocketed from 6 percent of total auto-M&A transaction values in 2013 to 84 percent in 2016.

John Hoffecker, global vice chairman at AlixPartners and a 30-year automotive veteran, said, “There’s an all-new automotive ecosystem developing, and I fear that many players really aren’t prepared for it. The changes coming are the biggest since the internal-combustion engine pushed aside horses and buggies, yet what the exact changes will be are as unpredictable as trying to guess which app is going to be most popular on next year’s smartphones.

“Leading players will be those that both study hard and are fast on their feet,” Hoffecker continued.

Mark Wakefield, global co-head of the automotive and industrial practice at AlixPartners, added, ”With the rapid but uncertain developments in connectivity, autonomy, shared mobility and electrification, traditional approaches to partnering and running organizations could well be setting up the auto industry to be disrupted. 

“Fast and savvy organizations that build their own agile ecosystems and create smart partnerships, but without locking themselves into technologies that may become quickly outdated, will be best positioned to afford the needed ‘CASE’ investments of the future and to prosper from the coming industry changes rather than being rolled over by them,” Wakefield went on to say.

Used-car sales likely to reach 3.2 million in June

CARY, N.C. - 

Used-car sales this month could trend down a bit from May, but they should maintain the same annualized rate, according to Edmunds.

The company released its monthly industry sales projections on Wednesday, calling for approximately 3.2 million used-car sales in June. That’s down from 3.3 million in May.

However, the seasonally adjusted annualized sales rate is expected to remain at 38.6 million this month.

On the new-car side, Edmunds is calling for 1.48 million sales in June, which would be down 2.3 percent year-over-year and month-over-month as the market continues to slow.

“While six straight months of sales declines sounds troubling, June is sandwiched between two major holiday sales events, which makes it a bit of a gloomy month historically,” Edmunds executive director of industry analysis Jessica Caldwell said in a news release. “Car shoppers are savvy enough to know automakers push the deals on holiday weekends and are willing to hold off on buying until they know they’re getting a hot bargain.”

The new-car SAAR for June would be 16.6 million.

The company said it is holding its annual forecast of 17.2 million new-car sales for full-year 2017, buoyed by economic strength and “enticing deals” in the second half.

Though down 2 percent from the best-ever year in 2016, hitting this mark would mean 2017 would have the fourth-highest new-car sales total ever.

Over at Cox Automotive, Kelley Blue Book is calling for 17.1 million new-car sales this year.

“We are moving into a ‘post-peak’ period for the U.S. auto industry,” Jonathan Smoke, chief economist for KBB parent company Cox Automotive, said in a news release.

“Many of the tailwinds that took the market to record sales in 2015 and 2016 are slowly becoming the headwinds that will keep new vehicle sales in check through the end of the decade,” he said.

KBB also noted a strong economy as a being a plus for new-car sales, it cited tailwinds like affordability and the 3.6 million cars expected to come off lease this year — vehicles that could be a less expensive, pre-owned alternative to new.

But that's not to say the new-car market is in dire straits by any stretch.

“Overall, despite slowing new-vehicle sales, we think the automotive market is healthy,” Smoke said. “Sales of approximately 17.1 million will make 2017 among the best years the industry has ever recorded. And the mix is strong, with profitable SUVs and crossovers dominating the market.”

Strongest world growth expected since 2010 could help EU auto rebound


In what could be good news for the automotive industry, Fitch Ratings projected in its latest Global Economic Outlook (GEO) that the recovery in global growth is strengthening and is expected to pick up to 2.9 percent this year and peak at 3.1 percent in 2018, which would be the highest rate since 2010.

“Faster growth this year reflects a synchronized improvement across both advanced and emerging market economies,” Fitch chief economist Brian Coulton said.

“Macro policies and tightening labor markets are supporting demand growth in advanced countries, while the turnaround in China's housing market since 2015 and the recovery in commodity prices from early 2016 has fueled a rebound in emerging market demand,” Coulton continued.

The biggest positive forecast revision since Fitch’s GEO shared back in March is to the Eurozone. Here, stronger incoming data, improving external demand and greater confidence that European Central Bank qualitative easing is gaining traction on activity have resulted in an upward revision of 0.3pps to the 2017 Eurozone growth forecast, taking it to 2 percent.

The recent pick-up in world trade growth has also been striking, according to Fitch.

However, the outlook also mentioned this improving global picture implies an evolving monetary policy outlook.

Fitch pointed out that China has recently seen a tightening in credit conditions, which will start to have an impact on growth later this year and the Fed looks set to pursue a normalization course at a rate of three or four hikes per year through 2019. Low core inflation allows the European Central Bank to carry on with qualitative easing for the time being, but the reduction in deflation risks will see the program phased out by mid-2018.

“With the (U.S. Federal Reserve) now signaling that qualitative easing will start to be unwound later this year, these monetary policy adjustments could spark some volatility in global financial markets attuned to persistent monetary accommodation,” Coulton said.

Auto-specific analysis

As Fitch shared its robust projections, IHS Markit currently is expecting that the passenger car market in the European Union will grow by 1.7 percent year-over-year to almost 14.94 million units. Those expectations are coming off a performance by the EU that saw year-over-year growth come in at 7 percent in 2016.

IHS Markit analysts pointed out the passenger car market in the European Union rebounded during May, according to the latest data published by European Automobile Manufacturers' Association. Registrations during the month climbed by 7.6 percent year-over-year to 1,386,818 units. This figure has helped to increase the growth momentum as the year-to-date now stands at 6,719,209 units.

“A strong rate of growth has been stimulated by a robust economic performance in the Eurozone, with a real GDP increase of 0.5 percent quarter-over-quarter according to Eurostat figures with positive contributions from Germany, Spain, France, Italy, Netherlands, Finland and Portugal,” IHS Markit principal automotive analyst Ian Fletcher said.

“Domestic demand is likely to have been the driver of this improvement, with fixed investments leading the way. Labor markets are also continuing to improve; unemployment is down in the region, while political risks are continuing to diminish,” Fletcher continued.

“However, future growth could be hampered by consumers becoming more cautious as their purchasing power and real incomes are squeezed by increased inflation and limited wage growth,” he went on to say. “IHS Markit expects that real GDP growth will ease slightly to 0.4 percent quarter-over-quarter in the second quarter and remain there in the final two quarters of 2017, although recent survey evidence suggests that an upward revision to near-growth prospects is more likely than a downward revision.”

More on policy & near-term forecast

Turning back to Fitch’s projections, the firm’s report mentioned the changing impact of fiscal policy on growth in the advanced economies also remains an important factor behind the improved near-term outlook.

The report pointed out fiscal policy began to shift to a mild easing stance from 2016 in the U.S. and the Eurozone after several years of substantial fiscal tightening over 2011 to 2015. Fitch’s analysis of multipliers suggested this shift has had a significant impact on growth dynamics in the advanced economies and seems likely to provide a further boost to growth over the next couple of years.

Demand growth in the larger emerging market economies is recovering strongly in 2017, according to Fitch. Both Brazil and Russia have recently seen a return to positive real GDP growth rates and the latest data suggest consumption and investment is starting to pick up in Russia.

Following very large declines in aggregate demand in the aftermath of sharp falls in commodity prices in 2014, there is now room for demand to recover in large emerging market commodity producers.

“The two key downside risks identified last quarter — Eurozone fragmentation risk and aggressive U.S.-led protectionism — have not gone away but have certainly diminished somewhat in recent months,” Coulton said.

U.S. shoppers more willing to pay for vehicle technology


Evidently vehicle shoppers in the U.S. will pay a much higher sum for advanced technology in their next new model than their counterparts in places such as Canada, Germany, the United Kingdom and China.

And IHS Markit suggested that automakers adjust their strategies accordingly.

The firm released a new global survey on consumer preferences for automotive technology on Monday. The project included more than 5,000 vehicle owners intending to purchase a new vehicle within the next 36 months who were surveyed in the 2017 Automotive Connected Services and Apps Consumer Analysis. The survey represented five key automotive markets — the U.S., Canada, China, Germany and the United Kingdom. This is the fifth annual survey of its kind from IHS Markit and identified key attributes for consumers, providing insight into preferences, desires and future interest as new-vehicle intenders return to market.

However, their willingness to pay for technology demonstrates a wide variety of viewpoints from consumers across these leading global markets

“This year’s survey includes consumer input on 31 technologies, from a variety of viewpoints,” said Colin Bird, automotive technology analyst for IHS Markit and co-author of the report. “Suppliers and automakers alike will be able to use these findings to help drive future business decisions and technology investments, while determining future product offerings.”

Here are some of the main survey findings. Any costs mentioned are in U.S. currency.

Creature comforts trump other technologies when cost is involved

Interestingly, the survey showed creature comforts topped consumers’ interests at the top of the list of technologies those surveyed would be willing to pay for. Consumers in four regions reported the highest propensity to invest in sunroof-moonroof technology in their new vehicle, with consumers in Germany willing to spend an additional $642 to have their next new vehicle equipped with one. Consumers surveyed in China agreed to pay $440 for similar technology.

Alternatively, consumers in the U.S. were most likely to pay for a rear-seat entertainment system, indicating a threshold investment of an estimated $640. Rear-seat entertainment ranked second for U.K. and China audiences, with a price point of $388, but did not resonate as a top choice by consumers in any other region included in the survey.

According to IHS Markit forecasts, significant volumes of new vehicles will be equipped with telematics by 2022. The projected volume figures are as follows:

—87 percent in the U.S.
—91 percent in Germany
—92 percent in the U.K.
—89 percent in Canada
—54 percent in China

The forecast also says more than half of the global fleet of vehicles in operation will be connected.

In comparison, 32 percent of all respondents surveyed agreed that telematics would be a feature they would be willing to pay for in their next new vehicle, and in-car wi-fi was noted by 29 percent. However, when asked about cost, both of these technologies were mentioned with a much lower price point by consumers willing to pay for them and different price points that varied by region.

Roadside assistance, crash notification and navigation systems are top of mind for consumers

The firm reported more than half of all respondents indicated they already have at least one vehicle that featured an infotainment or navigation system that offered features such as roadside assistance, stolen vehicle assistance, crash notification or turn-by-turn navigation. These features garnered the most interest for future vehicles as well, across all geographies. Thirty-two percent of respondents globally indicated roadside assistance as the most important telematics feature in a new vehicle, with stolen vehicle assistance important to 28 percent of respondents.

Automatic crash notification and turn-by-turn navigation were both preferred by one quarter of respondents.

In addition, the inclusion of real-time traffic information was overwhelmingly preferred by 51 percent of total respondents, with dynamic routing and a desire for maps to be updated wirelessly based on current conditions preferred by 41 percent for routing and 36 percent for wireless updates, respectively.

For consumers surveyed in China, however, remote vehicle control from a smartphone was the most popular feature, with 39 percent of respondents in the region indicating that feature was most important to them. Respondents in China represented a slightly younger demographic than in other countries, with the vast majority living in urban centers where technology was more widely accepted.

Integrated apps have opportunity in new vehicles

As in-vehicle technology continues its growth trajectory, so too does consumer desire to integrate their mobile apps into their vehicle, according to IHS Markit.

Among those surveyed, nearly all consumers who had familiarity with replicating their smartphone system onto an in-vehicle display indicated they were interested or somewhat interested in having this feature in their next new vehicle.

In addition, nearly half of all respondents indicated navigation apps as the leading use of smartphone apps in the vehicle. Weather apps followed with 40 percent of respondents using them in the vehicle, and 36 percent of respondents use music apps while in their vehicle. This creates significant opportunity for screen projection solutions, such as Apple CarPlay and Android Auto.

“Consumers expect a lot from their next vehicle,” Bird said. “Their expectations are constantly evolving as well, as consumers expect development and implementation of these technologies in vehicles to be introduced as quickly as consumer electronics such as smartphones and tablets.

“It’s up to OEMs and suppliers to determine how to best address these challenges and ramp up business plans accordingly,” Bird went on to say.

The complete report can be acquired here.

Franchised dealers eye opportunity in off-lease

CARY, N.C. - 

Off-lease vehicle volume is rising, used-vehicle prices are falling and Brian Benstock, vice-president of Paragon Honda and Paragon Acura, counts it all opportunity.

He’s looking forward to selling or leasing new vehicles to consumers when their leases expire and plans to buy a lot of those lower-mileage, off-lease vehicles for his thriving certified used-vehicle operations.

And though the industry expects a glut of off-lease vehicles to put downward pressure on new- and used-vehicle prices in the coming months, Benstock said it’s just “normal” market “ups and downs.” Honda and Acura residuals are holding up well, he adds.

“I’m excited about a lot of cars coming off-lease. Those cars need to be replaced, so there’s an opportunity to sell more new cars,” said Benstock who expects his Woodside, N.Y., dealerships to this year exceed the 3,012 certified used Hondas and 1,048 certified used Acuras they sold in 2016.

“And if the value drops on used cars, we’re going to pay less for them and that will create a value for the potential buyer. I’m bullish on the fact there are more off-lease cars.”

Price pressure

Edmunds estimates that 3.5 million off-lease vehicles will return to the market this year and the number will grow to 3.9 million in 2018 and to 4.2 million in 2019. That’s up from 2.5 million in 2015 and 3.2 million in 2016. That added volume is exerting downward pressure on prices of late-model, used cars and trucks.

For example, from the first quarter of 2010 to the first quarter of 2017, the average value of 3-year-old used vehicles increased 8.7 percent while the original MSRP of 3-year-old vehicles grew 14.7 percent in the same time period, according to Edmunds.

Lower used-vehicle prices can make it harder and more expensive for consumers who owe more on their trade-in than it’s worth to get auto loans.

Ivan Drury, senior analyst at Edmunds, said “42, 43 percent” of all new-car buyers have trade-ins and of that number, at least 25 percent owe an average of $5,000 more on their current vehicles than they are worth.

He said the overall percentage of buyers saddled with negative equity “is not overwhelming but what is so scary is that the (dollar) amount is so high.”

So far, interest rates are not a problem for dealers seeking financing for their customers because the increases have been small and most of the credit tightening is at the subprime level.

But Doug Wolford, vehicle exchange and lease manager at Oxmoor Toyota in Louisville, Ky., keeps his eye on interest rates and overall economic conditions such as housing and healthcare costs, anyway.

“It’s been 5 or 6 years since we’ve seen rates we’re going to be seeing in the next 12 to 18 to 24 months,” Wolford said. “I get credit apps on 95 percent of my customers and I listen to them. Student loan debt is a killer.”

CPO “maturing”

For years, off-lease vehicles have been the bread-and-butter of manufacturer-backed certified used-vehicles programs. But those sales are “maturing” and “not growing as fast” as they did in previous years, cautions Anil Goyal, senior vice president of automotive valuation and analytics at Black Book.

Incentives are lowering new-vehicle transaction prices so close to the prices of certified used vehicles that many consumers are opting for new instead of used, Goyal said.

“We are in a market that has plateaued and declining in many respects,” Goyal said. “Certified will tick up a little bit this year but it will be under the 5 percent.”

Even so, used-vehicle prices are high and Benstock believes CPO sales have room to grow.

“There is strong demand for used cars,” he said. “There is a significant portion of the dealer body not participating in certified programs, and remember there is several times the number of used cars are sold in the nation as new cars. Until we get that certified number closer to one-to-one with new, I think we still have a lot of room for growth.”

Todd Caputo, owner of Sun Chevrolet in Chittenango, N.Y., is already seeing his new-vehicle sales slowing down.

But he anticipates stocking more and lower-priced off-lease vehicles at his Chevy store and his two used-car dealerships.

To aid the effort, he’s building a new dealership in Cicero, N.Y., to replace his existing Sun Auto Warehouse used-car store. The $6 million, 43,000-square-foot facility will be twice the size of the current store and is to open in November.

His other used-car location is in Cortland, N.Y.

Caputo said his three dealerships retail about 5,000 used vehicles a year.

He added: “Savvy franchise dealers will be able to capitalize on off-lease vehicles and be more profitable with used cars.”