January Sales

All the people in the "lock down" mode on finances can wait out a new car for a while. Sooner or later it makes sense to get a new one and start all over. Sales will go up no matter what because the commodity wears out or gets near its useful life. Granted that is not all new car buyers who just want a change for fun.

 

Given the life span of modern cars there is no strictly economic reason to switch cars short of 10 years or 200k mi.

 

Last time I checked (and it could have been two or so years ago) the median for keeping a new car is just north of six years. When you take out leases (so just purchases) it actually goes much higher -- around eight years.

This number really went haywire after 2001. Essentially, people locked down, but then two years of 0-down 0-percent financing and huge rebates got people to trade in and trade up, especially as the economy recovered. I, like many other journalists and financial analysts, said at the time that the companies were front-loading sales, and that seems to be the case.


It's very interesting. In the 1950s and 1960s, cars were made to last six years, but most lasted far longer. (The British made their cars to last until all the important parts fell off). In the recent years, with JD Power and Consumer Reports, auto manufacturers have really worked to improve the useful life of vehicles and the important parts. The downside is that even the dregs of the car industry can last for 12-15 years and/or 350,000 miles without major work, making new car purchases a true luxury for most.

 

Fleets sales were terrible. -80% for GM.


The key data I look at is UNEMPLOYMENT.

 

Sales will no doubt increase at some point as replacement becomes more necessary. However, people will not be able to lease or buy as much as before in terms of dollars because of tighter credit which is likely to never become as easy as it was. I think the luxury brands like BMW, Lexus, etc. will have a tough time increasing sales. The really high end like Ferrari, Bentley, etc. should recover with the economy although sales fueled by HE will not materialize again for many years.

Dave

 

The great website Calculated Risk did a calculation of the turnover rate of the US automotive fleet. Basically, he divided the number of registered vehicles by the number of new annual registrations. The average, today? 23.9. So at current sales rates, the US automotive fleet would be completely replaced every 23.9 years.

Since 1967, the turnover rate has run between a low of around 8.5 and a high of around 15-- typically around 10-12. 23.9 is by far the highest value ever.

Interestingly, it's had a significant increase-- from 1967 - 1980 it was generally 10 or less, and after 1980 it rose to the 10-15 range.

http://www.calculatedriskblog.com/2009/01/vehicle-sales.html

 

http://jalopnik.com/5145799/red-storm-rising-gm-claims-china-beat-us-market-in-january-auto-sales

 

Hmm must be all those collector cars that skew the figures

 

What about the two year (presold) waiting list for Ferraris including the new California at the US dealerships? Are customers backing out, or was that just a myth?

 

This crisis has only been evident to most people since September, and unless your car was destroyed in an accident, or stolen, or comes off lease, no one really needs a new car right now. I would say people can wait a lot longer -- longer than this recession.

 

Right, and if you do, then you have the option of buying a competent used vehicle.

Unless there is some compelling reason to buy new - it's not going to change.

 

I think many customers are backing out. Also, there was no "national" list-- it varied by dealer. Some had multi-year lists, and some didn't. Now some have a lot of customers backing out, and some have a few.

 

Time to open an auto repair shop?

 

I have thought this too for a few months.

I also expect extended warranty companies might do OK in the future too.

There seems to be a huge change in mentality for many in the last few months. It has changed from "how soon can I trade this car off for the new model?"

but is now
"How long can I keep this thing going before i have to buy another one?"

 

I thought the drop in Ferrari NA numbers was "self imposed" by the two month shut down, and would expect their monthly numbers to bounce back, though the annual YTD number will still reflect Jan's drop for the rest of the year. I would also suspect their waiting lists are dramatically shorter than they were a year ago.

 

Don't forget, people routinely traded in cars they owed more on than they were worth. They dumped the negative equity into the note for the next car.
No more upside-down trades unless dealer starving, will want cash in to cover.
Ergo, less trading for people who shouldn't be trading, but less buusiness for the dealers that catered to this.
I'd bet 40% of trades were upside-down overall, far more with certain brands.

 

I would guess that the auto makers would did a large lease business will be hurt the most. Cars coming off lease add to the inventory glut and tight money cuts down the qualified new lease customers.

 

Interestingly, Hyundai's number are up on the gimmick of giving the car back if people lose their jobs in the first year. This obviously is a risky strategy for them, but they might also get a big chunk of market share in the meantime.

 

Innovation, in both the car and the selling of that car, is what is needed today. Price, being the primary consideration, but the ease of purchase and ownership, is what Hyundai, has shown in it's own way. The others will have to do this, to succeed.

People don't need to buy a car, particularly a new one. A used car is always a better value. You get another car when it's stolen or destroyed. Engines and transmissions, with their computer controls, can be replaced. The costs of this determines, whether a new car or used car, makes better economic sense. I think that peoples buying patterns have changed, drastically, but it still is the MONEY.

Ciao...Paolo

 

Chrysler has 5 months supply of cars on lots.

 

Depending upon when a manufacturer changes model years, some of that 5 months(or more, for other makes) could now be a year 'old'. Nifty, eh? Just adds to the pain.

 

Holy Crap! You can pretty shut down the plant and wave the white flag at this point. What are they going to say when they must report back to get more money? If Obama gives them anymore money, I have officially lost faith in his administration.

 

Some of em still have 2007 models on the lots.

 

Well, that should make for some nice opportunities for those who don't care if they drive a 2007 or 2009 model.

All this stock though, will also comprise the cars that wouldn't have sold in any economy, failed models, and everybody gets to pay for the bad judgements made.

Look at the market-shares of imports, and compare them to, let's say 30 years ago. The US automakers have missed the boat, and when they were urged to start producing smaller, more economic cars, they opted for the loopholes and invented the SUV and the domesticated truck. Now, when they are way behind the ROW, they cry for help.

Last advertisement for Hummer here in South Africa: Buy one and get a Harley thrown in. Yes, I believe we're still building them in Port Elisabeth. Car-assembly-plant, anyone?

 

OUCH! That's 150 days on hand!!!! Essentially the factory can stay CLOSED for 3-4 months!

Ok, I've been sort of a loudmouth on the pricing thing - these manufacturers and dealers aren't getting it. The dealer, which is leveraged on all the cars sitting in the lot, has negative cash flow at this point. You can't make payroll - so effectively, it's a race against how much cash you want to blow through vs. recovery. Well, we aren't recovering soon, so the only way to get cash flow up is selling cars. We all acknowledge no one is buying a new car....at least until the price of the new car is low enough to justify getting off your keester to purchase. When you can buy a new Chevy or Ford for less than $10K, you'll see people buying.

So why is it that dealers still show arrogance and hesitation? A family member of mine walked into a Saturn dealer over the weekend, knowing full well the sheer desperation these guys have for selling cars. My family member quoted an ad showing a low price, and the dealer said "we don't have that car". So my family member says "fine, give me another car at that price". The dealer says "no - we can't do that". That's called "BAIT AND SWITCH" - you'd think by now these a**holes would get it...NOPE.

My family member walked out. I think I am more pissed than he is - how the hell do you pull that crap in this economy?

I want GM, Ford, and Chrysler to succeed. I realize that dealers are independent operators and don't necessarily represent the policies of the manufacturer. That being said, the manufacturer's lifeline is based on the dealers producing. If I were the "Big 3", I'd be coaching dealers on this behavior...and I'd be discounting the crap out of these things.

150 days on hand!!! OUCH!!!!