Sales Reports

Used-car SAAR at highest rate of 2018

CARY, N.C.  - 

Thanks mostly to two fewer selling days, used-car retail sales last month declined an estimated 2 percent from April 2017 — but they’re pacing ahead of year-ago figures and reached the highest SAAR yet in 2018, according to Cox Automotive.

The seasonally adjusted annualized rate of used-car sales was at 39.7 million, company analysts estimate in the latest Manheim Used Vehicle Value Index report from Cox.

 Late last month, Edmunds was forecasting used-car sales to decline modestly from March, but with the SAAR expected to remain steady.

It projected April used-car sales of approximately 3.5 million units, compared to 3.7 million in March. The SAAR for both months, Edmunds said, was said to be at 39.2 million, Edmunds said in the April forecast. 

Within the certified pre-owned slice of the used-car market, a few automakers have shared results for the month, as well.

There were 1,602 Volvo CPO sales in April, down 1.4 percent year-over-year. Through four months, sales are up 7.7 percent at 6,585 units.

At Kia, dealers moved 6,078 certified units for the month, down 12.6 percent year-over-year. Year-to-date sales are at 25,589 units, down 3.1 percent.

Volkswagen CPO sales were up 40 percent in April, with 7,770 vehicles sold.

Porsche increased certified sales to 1,807 units, an 11.9-percent gain.

Mazda had a 14.7-percent increase with 4,090 CPO sales.

Cox Automotive sees April used sales soften as wholesale prices tick higher

ATLANTA - 

Along with pinpointing what the Manheim Used Vehicle Value Index did in April, Cox Automotive experts also projected how much and why used-vehicle sales softened a bit last month.

According to Cox Automotive estimates, used-vehicle sales decreased by 2 percent year-over-year in April versus the same month last year. Analysts said the dip primarily stemmed as a result of having two fewer selling days.

Cox Automotive highlighted the annualized pace of used vehicle sales is up 1 percent over last year.

“We estimate the April used SAAR to be 39.7 million, the highest level in four months,” analysts said.

Cox Automotive mentioned April new-vehicle sales decreased, sliding by 5 percent year-over-year with two fewer selling days compared to April 2017. The April SAAR came in at 17.1 million, up from last year’s 17.0 million; it is the eighth straight month of more than 17 million SAAR and the fifth-best April SAAR on record.

Analysts added that cars continue to see sharp declines as sales in April fell 21 percent compared to last year, with major car segments’ having sales declines. They pointed out light trucks outperformed cars in April and were up 5 percent year-over-year.

Cox Automotive went on to note that the combined rental, commercial and government purchases of new vehicles climbed 7 percent year-over-year in April, led by increases in commercial (up 9 percent) and rental (up 7 percent) channels.

Analysts closed the discussion by saying new-vehicle inventories came in higher than 4 million units for the second straight month, and inventories are at their highest levels since June of last year.

Wholesale-price movements

Looking now at the wholesale space, Cox Automotive found that used-vehicle prices (on a mix-, mileage- and seasonally adjusted basis) increased 1.33 percent month-over-month in April. This movement brought the Manheim Used Vehicle Value Index to 132.5, which was a 6.3 percent increase from a year ago and the highest level since last November.

“Looking at trends in weekly Manheim Market Report (MMR) prices, the traditional spring bounce this year started three weeks later than it did in 2016 and earlier years and peaked in April in week 15,” analysts said.

“Used-vehicle prices are now moving down but remain higher now compared to where they were at the beginning of the year than any of the last three years,” they continued.

On a year-over-year basis, Cox Automotive noticed all major market segments saw price gains in April. Compact cars and vans outperformed the overall market, climbing by 6.6 percent and 13.3 percent respectively.

Meanwhile, the latest index update showed SUV/CUVs and pickups underperformed the overall market, rising by 5.8 percent and 4.8 percent, respectively.

“Collectively, nonluxury vehicles outperformed the market, while luxury vehicles underperformed,” analysts said. “This is not unusual for the spring, as the observed bounce occurs only in nonluxury vehicles.

Also in the wholesale space, Cox Automotive determined that rental risk pricing strengthened.

Analysts found that the average price for rental risk units sold at auction in April jumped 9 percent year-over-year. Rental risk prices moved 2 percent higher compared to March.

The report mentioned average mileage for rental risk units in April (at 43,500 miles) came in 10 percent above a year ago but 3 percent lower month-over-month. 

General economic update

Cox Automotive closed its latest analysis by highlighting the continued strong economic momentum on display in the U.S.

Analysts recapped that the economy grew 2.3 percent in the first quarter, a decline from last year’s overall growth of 2.5 percent, but much better than the first quarter of last year’s “lackluster” 1.2-percent growth.

Cox Automotive said the second quarter should see growth rebound in keeping with the expected 2.8 percent to 3.0 percent likely GDP growth for 2018.

Analysts added that consumer confidence rebounded in April after declining in March. The April index level was the second-best level going back to November 2000.

Sonic establishes 6 new records during Q1

CHARLOTTE, N.C. - 

Sonic Automotive sure enjoyed a record-setting first quarter as the dealer group reported six different new milestones as a part of its latest financial statement released earlier this week.

Sonic said it posted new highs within six different metrics, including a trio related to its used-vehicle and F&I departments.

Starting from the top, the dealer group reported record first quarter revenue and gross profit of $2.4 billion and $352.5 million, respectively.

Next, Sonic set an all-time record quarterly pre-owned retail unit sales high, turning 33,739 units.

Then, the company highlighted an all-time record for quarterly F&I gross profit per retail unit of $1,490. That pace led to a record first quarter F&I gross of $93.7 million.

Furthermore, Sonic said it generated record first-quarter fixed operations gross profit of $169.6 million.

While all the high marks made for a great headline, Sonic did experience some challenges during Q1.

The dealer group watched gross profit per used vehicle retailed softened by $254 year-over-year to settle at $1,090.

On the new-model side, retail sales dipped by 3.3 percent to 29,500 vehicles. Sonic managed to keep its gross on those new-car turns nearly steady year-over-year as that figure softened by just $14 to $1,925.

When Sonic had to wholesale a vehicle during the first quarter, the company sustained some significant year-over-year setback.

Sonic deployed 9,680 vehicles to its wholesale channels in Q1, a 16.5-percent jump from a year earlier. The losses the company took on those units spiked 224 percent from $141 in Q1 of last year to $457 this past quarter.

“We shifted our strategy during the quarter related to the number of used vehicle inventory we are carrying,” Sonic chief financial officer Heath Byrd said in a news release.

“The decline in used gross per unit and the increase in wholesale loss resulted from us aggressively disposing of units to reduce our overall days’ supply of used vehicles,” Byrd continued.

“Additionally, we believe we found a good compromise between volume and gross for new vehicles and we were able to grow both fixed operations and F&I gross profit compared to the first quarter of 2017,” he added.

Byrd also touched on Sonic’s overall performance as well as the ongoing initiative in the used-vehicle space — EchoPark.

“The first quarter met our internal earnings expectations and we remain confident with our full year earnings guidance,” Byrd said.

“We remain committed to growing our franchise store operations and our EchoPark brand,” he continued.

“In addition to our dividend of $0.06 per share distributed during the first quarter, we continue to honor our commitment to return capital to shareholders as we repurchased approximately 1.2 million shares of our common stock for approximately $23.4 million,” Byrd went on to say.

3.5 million used-car sales likely for April

CARY, N.C.  - 

Used-car sales this month are likely to decline modestly from March, but the seasonally adjusted annualized rate should remain steady.

That’s according to an analysis released this week by Edmunds, which projects April used-car sales of approximately 3.5 million units.

That would be down from 3.7 million in March. The SAAR for both months, however, is at 39.2 million, Edmunds said.

The pre-owned market is bringing “growing competition” to the new-car market, according to an analysis released Thursday from Cox Automotive.  

Millions of off-lease vehicles are being pumped into the retail market for consumers, thanks to high leasing rates in recent years, the report notes.

Seperately, in its  2018 Used Car Market Report & Outlook released in March,  Cox Automotive forecasted 39.5 million used-car sales this year, up from 39.3 million a year ago.  New-car sales are likely to dip to 16.7 million for the year.

“Although buying conditions are strong for all vehicle markets, growth in used supply from off-lease vehicles, coupled with record prices for new products ad a modest pull-back in fleet activity, is steering new and used products in different directions,” Cox Automotive senior economist Charlie Chesbrough wrote in the used-car sales section of that report.

As for April, the company is projecting new-car sales to dip 3.6 percent year-over-year. But Cox Automotive called April’s pace “strong,” with a 17.3 million SAAR, beating the April 2017 pace of 17.0 million.

 

Lithia manages Q1 used-sales lift despite challenging weather conditions

MEDFORD, Ore. - 

The challenging winter weather experienced in much of the dealership footprint held by Lithia Motors left its mark on the first-quarter performance the dealer group reported on Wednesday.

Despite the Northeast getting especially pounded by snow and other elements preventing potential buyers coming to showrooms, Lithia managed a 4.2-percent improvement in used-vehicle retail sales during Q1, turning 31,677 units. That’s up from 30,404 used vehicles retailed in Q1 of 2017.

Lithia’s fortunes moving new metal were not so fruitful, as the dealer group watched new-model sales soften by a similar pace. Lithia retailed 33,886 new vehicles in Q1; a figure 4.3 percent lower than the 35,415 turned in the year-ago quarter.

“Vehicle sales improved sequentially each month of the quarter,” Lithia president and chief executive officer Bryan DeBoer said in a news release. “January and February were softer than expected and we experienced more severe weather than typical in the Northeast throughout the quarter.

“Despite the slower start, we finished strong with a record March, generating over 70 percent of our earnings,” DeBoer continued. “We expect this momentum to continue throughout 2018 and beyond.

“While fixed operations remains strong, sales shortfalls in January and February created an urgent call to action for our leaders to more aggressively pursue the over $200 million in unrealized earnings potential available to us,” he went on to say.

As DeBoer referenced, Lithia reported that its service, body and parts same-store sales increased 3 percent.

And whether group stores retailed a used or new vehicle, Lithia generated an extra 5.4 percent per unit in gross within the F&I department, collecting $1,380 with each vehicle rolling over the curb with financed packages included.

All told, company-wide Q1 revenue increased 19 percent to $2.7 billion. As a result, Lithia tabulated that its Q1 net income per diluted share came in at $2.07, a 3-percent increase over $2.01 per diluted share reported in the first quarter of 2017, and a 16-percent increase compared to adjusted net income of $1.78 per diluted share in the same period of 2017.

The company said its Q1 net income was $52 million, a 3-percent increase over $51 million reported in the first quarter of 2017, and a 16-percent increase compared to adjusted net income of $45 million for the same period of 2017.

Lithia also reaffirmed its outlook of full year revenues of $12.0 to $12.5 billion and earnings per share of $10.60.

The group’s board of directors approved a 7-percent increase in Lithia’s dividend to $0.29 per share related to Q1 financial results. Lithia expects to pay the dividend on May 25 to shareholders of record on May 11.

Year to date, Lithia has repurchased 90,000 shares at a weighted average price of $98.02 per share. Under its existing $250 million share repurchase authorization, approximately $154 million remains available.

Editor’s note: Watch for an upcoming report that will contain more insights from Lithia executives about the company’s Q1 performance and future expectations.

Delayed tax refunds impact March wholesale prices

ATLANTA and DALLAS - 

Based on how the flow of tax refunds impact the used-vehicle market, Cox Automotive wasn’t surprised by the movement of wholesale prices in March.

According to Manheim Used Vehicle Value Index — a measure of wholesale prices adjusted for mix, mileage and season — wholesale used-vehicle prices decreased slightly in March compared to February. But March prices climbed 5.4 percent from year-ago levels.

At 130.8, the index is at its lowest level since July 2017, a point just prior to when Hurricanes Harvey and Irma began to impact the market.

“The marginal price decline in March was not significant,” said Jonathan Smoke, chief economist for Cox Automotive. “The slight decline in the seasonally-adjusted index value was the result of the adjustment process expecting more of an increase in March, but delays in tax refunds have shifted the peak of used-car demand by several weeks.

“Looking ahead, we are expecting strong pricing in April and May, as tax refunds more fully impact the used-car market,” Smoke continued.

Delving deeper into the March wholesale data, analysts found several segments with prices moving higher.

In fact, Manheim noticed every vehicle segment posted wholesale price increases compared to last year, with an especially strong gain once again in vans. First quarter wholesale price trends for all segments included: 

— Compact car prices represent significant strength, with a 5.4 percent increase over 2017. That’s even more than the typically strong SUV/crossover segment.

— The midsize car segment was the weakest performer, but unlike previous quarters, the segment did not experience a decline, posting instead an increase of 0.9 percent over 2017.

— Pick-ups and vans both showed strength, with vans increasing significantly thanks to a 13.4-percent gain compared with March of last year. Manheim added that pick-ups had a comparatively modest increase of 5.5 percent.

 —Wholesale pricing for SUVs and crossovers underperformed the overall market, increasing 5.1 percent from last year. Analysts explained the underperformance is likely due to an increasing supply of used SUVs and more aggressive pricing and incentive spending on new inventory.

— Luxury car values once again underperformed the overall market, increasing 4.1 percent over the same period last year.

Also of note, Manheim determined rental-risk pricing strengthened in March, with the average price for rental-risk units sold at auction up 7 percent over last year and 4 percent compared to February.

Analysts added the average mileage of 45,000 for rental-risk units in March was 13 percent higher than last year.

Correlating the used-vehicle market with the tax calendar

After plowing through the March wholesale pricing data, Cox Automotive returned back to a discussion about IRS activities and a recap of how retail sales landed in March.

Historically, Cox Automotive acknowledged used-vehicle sales in the U.S. have peaked in the weeks following the peak in tax refunds. Starting in 2017, however, the IRS delayed the point when households with eligible tax credits could file tax returns. This resulted in refunds being delayed by approximately four weeks, impacting used-vehicle sales and pricing.

“This same situation is impacting 2018, as well,” analysts said.

Used-vehicle sales in March increased 1 percent over year-ago levels, according to Cox Automotive estimates, with the month’s seasonally adjusted annual rate (SAAR) for used vehicles rounding out at 39.5 million units.

Since 2009, the average March increase relative to February in the Manheim Used Vehicle Value Index has been 3.5 percent, just slightly higher than the March 2018 unadjusted increase of 3.4 percent.

Analysts explained the historical bump in March pricing has been driven by an increase in used-vehicle demand driven by earlier tax refunds.

“The seasonal-adjustment process still expects to see this historical pattern in used-vehicle values,” Cox Automotive said. “As a result, the seasonally adjusted value for March registered the slight 0.15 percent decline.”

Through the week of March 23, Cox Automotive mentioned the cumulative number of refunds in 2018 is down 1 percent compared to 2017.

“The weekly trend in refunds, however, relative to last year, is now trending up, with experts predicting a stronger price trend in April as retail used-car demand will likely peak for the year,” analysts added.

Meanwhile, on the new-car side, Cox Automotive recapped that new-vehicle sales increased 6 percent year-over-year in March, coming in far stronger than forecast and surprising most analysts and experts.

The March 2018 new-vehicle SAAR of 17.4 million, up from 16.7 million in 2017, marked the seventh straight month of more than 17 million SAAR and the third best March on record.

“Cars continue to experience sharp declines in the market, with sales last month falling 9 percent compared to year-earlier levels. Trucks and SUVs continued to gain share,” analysts said.

The latest commentary from Comerica Bank also touched on new-vehicle sales, noting how challenging it is to project future figures.

“Forecasting auto sales is now a two-handed argument,” Comerica Bank chief economist Robert Dye said.

“On the one hand, strong economic conditions are supportive of ongoing auto sales,” Dye continued. “On the other hand, sales were declining through the first eight months of 2017, then came the surge in sales in September as a result of hurricane damage along Gulf Coast.

“We expect to see gradually easing auto sales this year,” he added.

Trends and economic momentum

Cox Automotive closed its latest index update by noting some general economic news.

Analysts mentioned the fourth quarter's real GDP growth rate was revised upward to 2.9 percent from its previous 2.5 percent.

“Expectations remain for a continuation of accelerated growth this year due in part to increased consumer spending and business investment resulting from recent tax reform,” Cox Automotive said.

“Despite consumer confidence last month experiencing a moderate decline from a 17-year high in February, largely due to stock market volatility, consumer spending expectations remain high due to tax cuts, strong wage growth and the robust labor market,” the company went on to say.

Dye also discussed an important component in dealerships turning vehicles — their customers having a job to generate income and pay their installment contract.

Dye explained the official federal employment data for March was “eye-catching” as firms increased employment by just 103,000 jobs on net, “well below consensus expectations” of about 185,000 for the month. He pointed out the miss in March payrolls comes on the heels of a robust 326,000 job gain in February.

“The March slump looks like mean reversion right now,” Dye said. “If it is followed by a weak April, that is another story, but other indicators point to ongoing moderate job growth this spring.

“The unemployment rate stayed at 4.1 percent for the sixth consecutive month,” he continued. “We still expect it to edge lower, but the rate of decline has clearly eased.

“Average hourly earnings increased by 0.3 percent for the month and are up 2.7 percent over the previous year,” Dye went on to say.

 

Kontos pinpoints 2017 used-sales total and February wholesale price shifts

CARMEL, Ind. - 

Along with recapping some of the full-year used-vehicle metrics he discussed during NADA Show 2018, KAR Auction Services chief economist Tom Kontos also pinpointed wholesale price movements for February.

According to ADESA Analytical Services’ monthly analysis of wholesale used-vehicle prices by vehicle model class, wholesale used-vehicle prices in February averaged $10,707, which was 2.5 percent lower compared to January and 0.2 percent higher relative to February 2017.

Kontos noted that sporty cars made the highest price jump in February, climbing by 4.5 percent.

He added that decliners were paced by full-size cars, which softened by 6.6 percent.

According to his presentation shared during the annual event hosted by the National Automobile Dealers Association, there was a 2.0-percent lift in used-vehicle transactions in 2017. The combination of turns at franchised and independent stores as well as deals made by private parties resulted in 41.38 million used-vehicle sales last year, according to Kontos.

The 2017 figure represented a jump of 827,000 units, with private sales constituting more than half of that amount. Here is a breakdown of the full-year figure:

— Sales at franchised dealerships: 15.1 million

— Sales at independent dealerships: 14.1 million

— Private party transactions: 12.1 million

Also of note within Kontos’ NADA material, the KAR expert mentioned how 2017 also marked a significant drop if sales into rental fleets. Last year, the industry saw a drop-off of 12.3 percent or 222,544 units go into the rental market.

Still, Kontos indicated automakers still sent 1,592,380 new vehicles into rental fleets in 2017.

And one other full-year metric Kontos shared focused on sales volume by seller type. Fleet/lease consignors posted a 10.3 percent year-over-year volume lift in 2017 while manufacturers sustained a softening of 14.7 percent. Kontos also pegged dealer consignment volume as being down by 4.0 percent year-over year.

“Dealer consignment volumes are down as dealers take fewer new-car trades,” Kontos said in his presentation. “Declining manufacturer volumes reflect lower rental sales and recall delays. Off-lease and repo volumes are reflected in growing fleet/lease sales.”

ADESA Wholesale Used-Vehicle Price Trends

   Average  Price  ($/Unit)  Latest  Month Versus
   February 2018  January 2018  February 2017  Prior Month  Prior Year
           
 Total All Vehicles  $10,707  $10,980  $10,688  -2.5%  0.2%
           
 Total Cars  $8,609  $8,751  $8,732  -1.6%  -1.4%
 Compact Car  $6,563  $6,698  $6,658  -2.0%  -1.4%
 Midsize Car  $7,702  $7,880  $7,942  -2.3%  -3.0%
 Full-size Car  $7,554  $7,853  $8,092  -3.8%  -6.6%
 Luxury Car  $13,132  $13,170  $13,015  -0.3%  0.9%
 Sporty Car  $14,079  $13,987  $13,478  0.7%  4.5%
           
 Total Trucks  $12,647  $13,074  $12,650  -3.3%  0.0%
 Minivan  $8,714  $9,048  $9,004  -3.7%  -3.2%
 Full-size Van  $13,032  $12,980  $12,838  0.4%  1.5%
 Compact SUV/CUV  $10,638  $10,680  $10,733  -0.4%  -0.9%
 Midsize SUV/CUV  $11,083  $11,578  $11,319  -4.3%  -2.1%
 Full-size SUV/CUV  $13,411  $14,648  $13,140  -8.4%  2.1%
 Luxury SUV/CUV  $18,101  $18,466  $18,258  -1.9%  -0.9%
 Compact Pickup  $8,977  $9,306  $8,818  -3.5%  1.8%
 Full-size Pickup  $16,635  $16,190  $15,796  -3.4%  -1.0%

Source: ADESA Analytical Services.

Assessing implications of GM switching to quarterly sales updates

DETROIT - 

Both Cox Automotive senior economist Charlie Chesbrough and Autotrader executive analyst Michelle Krebs each shared a cautionary reaction on Tuesday morning just hours after General Motors announced that the automaker will begin reporting its U.S. vehicle sales on a quarterly basis, effective immediately.

Contained in the closing segment of what evidently is its last monthly sales announcement, GM explained that now second quarter sales will be released on July 3, third quarter sales on Oct. 2 and fourth quarter sales on Jan. 3 of next year.

“Thirty days is not enough time to separate real sales trends from short-term fluctuations in a very dynamic, highly competitive market,” said Kurt McNeil, U.S. vice president of sales operations at GM. “Reporting sales quarterly better aligns with our business, and the quality of information will make it easier to see how the business is performing.”

In the auto industry, GM emphasized monthly sales are subject to many issues that make them more volatile than quarterly sales, including product launch activity, weather, other seasonal factors, the number of selling days and incentive activity.

GM also added that its “high level of transparency” on total, brand and nameplate sales, fleet mix and inventory will not change. The company will also continue sharing J.D. Power PIN estimates for incentive spending and average transaction prices.

Chesbrough replied first when Auto Remarketing asked for a reaction to GM’s decision during a conference call Cox Automotive hosts on a monthly basis.

“I think for GM, they feel like this is going to be a time saver,” Chesbrough said. “They won’t be scrambling so much to get the news out at the start of each month. They feel maybe they’re chasing a little too much monthly volatility, which might be out of their control. And they haven’t been able to focus enough on bigger picture stories they could focus on a quarterly basis. I think that’s the general idea.”

If a company as large as GM makes this decision, what about other members of the Big 3 or leading foreign automakers?

“Our expectation is that other companies are going to likely follow,” Chesbrough said. “We don’t know how many, but I wouldn’t be surprised to see a couple of other big OEMs also decide to move to quarterly reporting basis.”

If that does in fact happen, Chesbrough touched on what the implications could be.

“I think the danger for the industry and where there are risks are for the companies themselves,” he said. “They probably will have less control over the narrative of what’s going on each month, if their sales are up or down, it’s going to be up to whatever analyst says they are or what reporters decide they’re going to be since we won’t know the facts themselves. I think there is some risk to that.

“Also, what replaces that information source? Is the industry able to find a viable replacement other than GM reporting those numbers themselves? Certainly, we all want to know what’s happening in the industry on a real-time basis because we know the auto industry is an important component for Wall Street in terms of monitoring the overall health of the economy,” Chesbrough went on to say. “I think people are going to want to know and have some kind of a measurement as to how sales are progressing.”

For Krebs, she approached from the perspective on how the GM decision could be create a much greater impact than knowing how many new trucks or sedans franchised dealerships turned in a given month.

“I was around in the lead up to the recession, and auto sales were a bellwether of the economy,” Krebs said. “We might not get at least a public lead on that without seeing monthly sales. But I understand why GM is doing it. Other industries do it. In the real estate industry, they switched over. Other retailers like Wal-Mart and Target, they don’t do monthly sales. I get it on that respect.

“And if you look at the first quarter as an example, January and February are really low months and March is a very high month so looking quarterly does even things out,” she continued.

There is a lot of nuance that I think is often lost, things that we try to provide here,” Krebs went on to say. “What are inventories levels? Are they low or high? How does that effect sales? Things like incentives. There are a lot of nuances that don’t always get reported.”

While Chesbrough, Krebs and their colleagues won’t have GM data to review at the top of each month, they’re still primed to watch other metrics and assess accordingly.

“At this point, we’re still reacting ourselves as to what Cox Automotive is going to do, but we plan to continue to provide information on a monthly basis,” Chesbrough said.

Latest KeyBanc dealer survey highlights ongoing challenge of maintaining gross

CLEVELAND - 

As the industry counts how many used vehicles were retailed during March, the dealer survey orchestrated by KeyBanc Capital Markets in February gauged how stores continue to have some struggles despite rising turns in their used departments.

Survey orchestrators reported that gross-profit trends continued to reflect competitive pressure in new and used segments, which should continue to be offset by strength in F&I gross profit per unit, while parts and service gross margins remained intact at near-record highs.

Within new vehicles, KeyBanc found that a slight majority of dealer respondents — 55 percent to be exact — reported a pullback in gross profit per unit, a worsening versus the rolling three-month average of 43 percent.

On the used-vehicle side, the survey showed that 45 percent of participating dealer reported a pullback in gross profit per unit, in line with the rolling three-month average of 43 percent.

KeyBanc added that F&I gross profit per unit remained strong with 91 percent reporting intact or increasing results year-over-year.

Furthermore, KeyBanc mentioned that 64 percent of respondents reported intact P&S gross margin, in line with the rolling three-month average of 63 percent.

Also of note, dealers told KeyBanc that financing remains attractive to keep metal moving.

“Overall automotive financing and subprime financing availability continued to contract, not unusual at the peak of the cycle, but credit available remains well aligned with demand,” KeyBanc said.

GM more upbeat about used market than a year ago

LAS VEGAS - 

General Motors president Dan Ammann acknowledged the situation involving overall off-lease volume in the wholesale market and how the automaker and its captive — General Motors Financial — set residual values created some notable stress.

“We were just saying last night that when we were together a year ago, we were quite concerned, but we feel a lot better about it now,” Ammann said during a conversation with industry media after his opening keynote presentation during last week’s Vehicle Finance Conference hosted by the American Financial Services Association.

Ammann then differed to the executive seated next to him inside a marble-clad boardroom at the Bellagio in Las Vegas to elaborate on why GM’s assessment of the used-car market is less concerning now. That colleague was GM Financial president and chief executive officer Dan Berce, who took his turn on stage during a panel discussion later at AFSA’s event.

“Obviously at this time last year, used-car prices were down in the neighborhood of 7 percent year-over-year,” Berce began. “Now more recently, year-over-year stats have been flat. That certainly doesn’t mean that the residual-value matter is behind us because there are still going to be a lot of off-lease vehicles this year and through 2019 before supply starts to flatten out.

“Residual value management is really a joint effort between GM and GMF,” Berce continued. “GM has taken some steps to strengthen residual values with their management of inventory and management of their fleet sales versus retail. Their incentive spend has been favorable to residual values.

“It really starts from the OEM, but from a finance company standpoint, we do all of the remarketing, whether it’s off-lease, company cars, fleet,” Berce went on to say. “We’ve got good technology with the combination of online sales and physical auctions. We have a pretty good optimization model where we can figure out what markets the cars should go to, what the best price point is.”

Of course, after many of those vehicles navigate their way through the remarketing channels, they end up at GM franchised dealerships as certified pre-owned models. And GM has had a robust start to 2018 with its CPO sales.

In January, Chevrolet, Buick and GMC stores turned a total of 27,635 CPO units, according to information compiled and shared by Autodata Corp. That January figure represented an 8.2-percent lift year-over-year.

Then in February, Autodata indicated GM’s certified program registered 29,229 retail sales, marking a 4.5-percent improvement year-over-year.

And also of note, Cadillac CPO sales — which are associated with a separate program — is building off a record year in 2017 when the brand turned 48,245 units. After compiling a 37.9-percent sale jump for all of 2017, the luxury badge has started each of the first two months of 2018 with double-digits gains, according to Autodata.

Likely all of those encouraging trends are why Ammann, Berce and the GM and GM Financial teams are upbeat about the used slice of its broad operations.

“CPO is an important part of the residual value strategy. It’s a vehicle that the consumer prefers in most cases because of reliability and the OEM standing behind it. That’s certainly good from a residual value perspective to have a good CPO program,” Berce said.

As mentioned, Ammann delivered the opening presentation of AFSA’s annual gathering of auto finance leaders. He discussed not only GM’s current state of affairs but also how the automaker is part of the industry-wide advancement in technology with the end goal being autonomous vehicles. For example, in just a few months, GM plans to release a vehicle designed without a steering wheel.

James Treece of Automotive News asked Ammann about how GM is handling the conundrum of consumers often waiting for at least the second generation of a technologically advanced vehicle before taking delivery and how that condition might impact leasing and eventually the certified prospects for the first iteration of a model.

“That’s a very good question,” Ammann began. “One of the big changes that’s happening right now is how cars are upgradable and technology is upgradable. We will be adding features over time.

“We’ve gone from this historical mindset that’s perfectly logical that you buy a car and it depreciates, to now you buy a car and it can get better over time, more features, more capability with updates,” he continued. “That’s a very significant change and arguably could have a very positive effect on residuals and CPO.”

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