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Monday, Sep 25, 2023

Dealers Still Enjoy Strength in Numbers

Auto dealers are beginning to see the slowdown in the spending frenzy that has characterized nearly all consumer goods markets for several years now, but that news isn’t all bad. Sales for auto dealers have remained at such high levels, that even with a softening, dealers say they are still pleased with the recent activity. Through April local dealers polled said they have seen sales continue to increase, albeit at a slower pace, and the trend mirrors what is happening nationally where year to date sales are up moderately over a year ago. “We started the first quarter of the year up 5 percent or 6 percent,” said Leonard Schrage, general manager at Universal City Nissan. “We thought it was a really nice trend.” Sales cooled somewhat in May at Universal City Nissan, but Schrage noted that the dealership was up against very high numbers for the prior year. Across the country, auto sales for the first quarter continued to climb at an average of 6 percent in spite of the record-breaking volumes in 2004. “Before 1999, the industry only had sales over 16 million units once before,” said Tom Libby, senior director of industry analysis at the Power Information Network division of J.D. Power and Associates. “We’ve been over 16 million (units) since 2000, which is really very strong.” Some dealers report that the strong refinance market of the past several years has helped to pump up auto sales as well. But sadly for the bottom lines of the car manufacturers, the real driver has been ever-spiraling incentives that began in the wake of the Sept. 11 terrorist attacks. “The increased affordability of new vehicles, which is largely a function of incentives, has certainly made them a more appealing buy,” said Bob Schnorbus, chief economist at J.D. Power. “If you think of the long term trend in the U.S. automotive market rising at one-half percent to one percent a year, that has been increased as a result of the incentives making the vehicles more affordable.” Schnorbus believes that in autos, as with other areas of consumer spending, discounts and other incentives are persuading shoppers to spend instead of save. So consumers may be taking the refinance money they pulled from their homes over the past several years and investing it in a new car. During the height of the refinance boom, consumers shopping at Toyota of North Hollywood were using home equity loans to pay for their auto purchases, said Chris Ashworth, general manager of the dealership. But lately, as interest rates have inched up, Ashworth said dealer financing has become more prevalent. Although SUV sales have slowed for some models, dealers report that other vehicles have moved in to pick up the slack. At Galpin, the new Ford Mustang model helped to drive record Memorial Day sales. “The offset to some of that (SUV) business has been the Mustang,” said Bert Boeckmann, president and owner of Galpin Motors in North Hills. “I do not have one V8 in stock. We sold them out this weekend.” Increase over last year Overall, Boeckmann reported that the Ford dealership rang up an 8 percent increase over the first four days of the five-day Memorial Day weekend sale, compared to 2004. The other Galpin dealerships saw similar sales activity. “It was very strong,” Boeckmann said. “I think this year was our strongest holiday yet.” Across the country, passenger cars outperformed trucks and SUVs in the first quarter of the year, PIN data showed, in many cases recording double digit sales increases. Among the strongest performers, BMW’s Mini Cooper, Ford’s Mustang, Cadillac’s SLR, Chevrolet Malibu, Pontiac’s GTO, the Acura RL, Hyundai’s Sonata, Kia Spectra, Mazda3, Nissan Maxima, Scion and Toyota Camry turned in some of the best percentage increases for the first quarter of the year. And while SUVs generally lagged well behind the trend, dealers reported some models turned in very strong performances. At Toyota of North Hollywood, the popular Prius model has been selling exceptionally well. “There’s still not enough supply and may never be,” said Ashworth. And the company’s new seven-passenger Toyota Highlander is showing promise. “It gets over 30 mpg, which for a sport utility is terrific,” Ashworth added. Dealers who carry hybrid SUVs, such as the Ford Escape report they can’t keep the vehicles in stock. And at Universal’s Infiniti store, sales of the Infiniti QX series “remain brisk,” Schrage said. Slower SUVs But for the most part, SUV sales have been the laggards on car dealer lots, whether because some of the models have grown old or due to the recent spike in gas prices. Some dealers said that they suspect the most recent increases in gas prices, hitting a high of more than $2.60 a gallon, may have kept some buyers away from the showrooms altogether. “When gas prices started going up a couple of years ago, and there was still a small sense of economic confidence, there was still enough uncertainty for people to sit on the sidelines,” said Schrage. “When gas prices stabilized, sales picked up. People want to know where gas is going before they make a commitment to a car they’re going to be driving for the next three to five years.” Schrage nonetheless is anticipating a very busy summer, and the pundits agree. So far this year, auto sales have pretty much mirrored the last several years, starting off slow, rising sharply in the fourth quarter and then falling off again until December when the sales curve again turns sharply upward. JD Power expects the industry to end the year up moderately from a year ago. “The problem is the third quarter and the December surges have all been incentive driven, and we can’t be sure that the manufacturers are going to increase incentives this year the way they have in the past in order to get that big third quarter burst in sales,” said Power’s Schnorbus. Incentives generally have been declining since the peak reached in 2003, Schnorbus noted. Add to that the profitability problems at the Big Three auto makers, and the future of big incentive programs seems all the more uncertain. Still, he and dealers point out that consumers have become accustomed to the incentive programs and auto makers may not be able to afford the sales declines they risk by pulling them. “I haven’t seen any signs of (the Big Three) making major inroads into that goal (of reducing incentives),” said Schrage at Universal, “so I don’t see the incentive war lightening up in the very near future.”

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