ADESA’s Kontos Discusses Market Trends at NABD
LAS VEGAS — During this week's National Alliance of Buy-Here, Pay-Here Dealers conference, Tom Kontos, ADESA's vice president of customer strategies and analytics, offered his analysis of the marketplace.
He started off his presentation by talking about the presidential candidates and what they can be compared to. For McCain, Tom likened him to a "volcano." He owns a Lexus and Prius.
As for Obama, Kontos titled him the "barricade," noting he has a Chrysler and a Ford Escape Hybrid.
Meanwhile, he called Clinton the "hilarious." She and her husband own a Mercury Mariner Hybrid.
Next, Kontos moved on to discuss all the services ADESA offers, centering in with a special focus on online offerings.
After talking about his company's services, Kontos went into his current market analysis.
"We are in an election year, and there is a lot of spin out there," he explained. "A lot of times, if you think you're in a recession and act like you are in a recession, it becomes one.
"I'm not going to tell you we are in a recession. Data that has economists most concerned are the declines in job growth. However, even this figure is getting better in terms of negative impact. Unemployment rates declined and are at a relatively historical low," Kontos indicated.
He described the country as in a slowdown; however, he said a recession has yet to be seen.
Kontos went on to discuss the importance of the housing sector, saying that the downturn is a "necessary medicine." Also, he pointed out that a "correction in housing needs to take place."
As for gas prices, he predicted that the country will need to realize that $3.50 per gallon gas will probably be long term.
Prices for late-model units are climbing faster than older vehicles, indicating there is a shortage in the marketplace, Kontos continued.
Given that many auto lenders are trimming originations, especially in the subprime credit tier, he expects this to impact BHPH dealers.
"There may be folks out there that are less traditional (BHPH customers) coming into your stores looking for younger used cars," he said.
While several other industry officials appeared to disagree, including Ken Shilson (NABD founder), Kontos said it is a "buyers' market at auction" for older used vehicles.
However, Kontos did say that older units from $3,000 to $5,000 have shown an increase in prices at auctions. Thanks to repossessions, there has been higher availability of these units, he noted, dealers just need to make the effort to find them.
The most severe prices declines have appeared in two- to three-year-old models. However, six- and seven-year-old cars are seeing declines as well, he said.
Talking about leasing penetration, Kontos said this has trended above 25 percent of late.
"As delinquency rates rise, so do repossessions," he pointed out. "There has been some spillover from the mortgage crisis. A total of 1.6 million versus 1.5 million came into the lanes last year."
He also noted that dealer consignment volumes have been down at auctions as franchised dealers tend to hold onto trade-ins to sell on their lots. Despite these dealers' focus on used-vehicle sales as new sales falter, Kontos said there was a "little bit of a downturn in franchised used-car sales."
Overall, he described used-car prices as soft at auctions.
"Pickup trucks and SUVs are showing the poorest performances, while compact cars are bringing in all the money," he stated.
Those industry professionals hoping that the lower interest rates will help the market should expect a wait.
"Lower interest rates take about six months to have an impact. I think the Fed has done a pretty good job in an election year," Kontos said.
"I see good things in 2009 and late, late 2008," he added.
Will rebates help vehicle sales?
"I believe the tendency for Americans is to take money and spend it. However, rebates are a positive. It's a good thing the government can do to help avert a recession," Kontos indicated.
So, despite concerns to the contrary, Kontos stressed that the U.S. is not yet in a recession and he doesn't know if one will occur. He pointed to the common reasoning that two consecutive quarters of decline in the gross domestic product generally point to a recession. Well, the country has not shown this, he highlighted.
So while he didn't rule a recession out entirely, he appeared to believe that the market is resilient enough to avoid one and bounce back in late 2008 and into 2009. This means perhaps sales will bounce back as well?