Incentives: More likely a battle than a war

I have read a few articles about the imminent incentive war coming in the next few months. The argument is simple; Toyota and Honda will get inventory back from the return of full production and attempt to recoup some of the market share they lost during the past few months.  Domestic manufacturers, reluctant to give up share, will counter with their own round of incentives until our market reaches a crescendo and an all out price war ensues. I am of the opinion that we won’t get to that point. There are a few factors that need to be considered by manufacturers before they intend ...

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New Vehicle Sales – An Optimistic View

Uncertainty in the economy has certainly created some challenges for the automotive market.  The Seasonally Adjusted Annual Rate (SAAR) for new car sales barely topped 12M for August and used sales declined by about 3% according to CNW.  Considering the tumultuousness of stock market and the increased dissatisfaction with economic policy, new car sales should be considered a bright spot in our economy. Economic headwinds aside, there are reasons to believe that momentum will continue to build for new vehicle sales. For starters, replacement demand for vehicles should keep the new ...

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Returning Used Supply – The Worst is Yet to Come

It’s no secret that off-lease and personal used supply have been on a continuous slide since the middle of last year, as a challenging economic environment, manufacturer bankruptcies and restructurings, and extreme fuel price volatility have taken a dramatic bite out of new vehicle sales – and subsequently the used vehicle supply.  While the continuation of the downward trend has been widely reported, the extent and extreme depth of the trough might come as a surprise to some, especially as it relates to certain truck segments. Let’s take a look at new vehicle sales from the past f ...

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The Debt Ceiling

The negative impact from the debt ceiling debate on automotive sales may be significant even if the government decides to raise the ceiling by August 2nd, which in all likelihood will occur. The political posturing on this event may bring about some clarity on how we handle our budget deficit; however a negative short-term impact on consumer confidence will surely occur.  This situation comes on the heels of very disappointing employment numbers. Job creation only reached 18,000 jobs in June, well below the 150,000 needed to lower the unemployment rate. This alone surely wi ...

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Used Prices on Small Cars Decline from June Peak

Used prices are declining from their peak in June and are expected to continue this trend through the remainder of the year.  The overall used market is expected to experience overall depreciation of 3.7% which dramatically outperforms normal depreciation which averaged about XX% during the past five years.  Compact cars to continue to outpace the market and even with the anticipated declines in value most vehicles are still enjoying strong year to date gains.  Prices for the overall segment, shown above, are 10.2% above the prices paid in January. On a model level basis ...

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Small Car Prices Begin their Descent

It’s funny that $3.50 is a welcome sign of lower gas prices when at one time the industry talked about $3.00 gas as a tipping point for truck and SUV demand.  The decline in gas prices has been dramatic, falling from a high of $3.99 in May; however consumers are still paying over $.80 more per gallon compared to last year’s prices.  With the new perception that gas prices at or above $3.00 is an acceptable price, are we now in a situation where demand for small cars will continue to be strong, and consequently the used prices will remain well above historical levels?  The dramat ...

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New vs. Used Payment

Auction prices on passenger cars this week continued to follow a gradual decline from the peak prices reached during early June.  The view from the peak has been amazing; wholesale prices on many passenger cars still hover at 25 – 30% over last year’s prices, which is great for stimulating new car sales.  Industry pundits, NADA included, are forecasting depreciation throughout the remainder of the year, but not at a rate that will significantly change the gains we have experienced year over year.  In fact, most consumers will remain with a strong equity position on their used tr ...

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Supply Impact on Price

We’ve frequently stated that lower used vehicle supply has played a critical role in keeping used vehicle prices high over the past two years.  However the supply of vehicles being wholesaled through physical auctions has experienced even sharper declines than the market as a whole, and as a result wholesale auction prices continued to reach record levels during May and into early June.  While we have likely reached a peak in used prices for a variety of reasons, NADA does not expect prices to decline dramatically which is an assumption that is supported in large part by supply da ...

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Politics & the Automotive Industry

I read a quote this week that made me start thinking about all the political banter surrounding the automotive industry.  The quote went something like this: “In retrospect the situation was very predictable...”  The context of the quote was not automotive related, but made me think of what scholars have dubbed hindsight bias, which basically explains that when one  looks at anything retrospectively it creates false confidence that  a situation was easily predictable when it occurred  even though the event was very complicated at the time.  This quote is ver ...

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May Sales could have reached 12.6M

The doom and gloom in the press was getting me down, so I decided to find some solace by searching for a silver lining among all of these dark clouds.  The used market is one; prices are high, demand is strong, and more consumers can view their automobile as an asset and not a liability.  On a more theoretical level, David Wagner, NADA’s Senior Manager of Analytics, provided some other encouraging data that helped improve my day.  The month of May's new vehicle sales were disappointing and when thrown into the cauldron of other bad news (unemployment, consumer confidence, etc. ...

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