2013 Auto Sales Will Be Strong, Firm Predicts

A healthier economy and more new model introductions should push U.S. auto sales above the 15 million mark this year, predicts an auto industry research firm. 

The Polk research firm says auto sales should continue to lead the country's economic recovery, rising nearly 7 percent over 2012 to 15.3 million new vehicle registrations.

Automakers will release December and full-year sales for 2012 today. Analysts think sales reached 14.5 million last year, the strongest performance since 2007 -- just before Americans felt the impact of the recession. Sales of more than 15 million are considered a sign of health for the auto industry and the economy, many analysts say.

Polk does not expect pre-recession sales levels of 17 million for several more years, Anthony Pratt, Polk's forecasting director for the Americas, said Wednesday.

Polk expects 43 new models to be introduced this year, up 50 percent from last year. New models usually boost sales. The company also predicts a rebound in sales of large pickups and midsize cars.

But Polk's optimistic forecast firm hinges on Washington reaching an agreement on spending cuts, which could happen later in the year. On New Year's Day, congress approved a compromise to avoid the so-called "fiscal cliff." The deal raises taxes for incomes exceeding $400,000 for individuals and $450,000 for couples. But it delayed action on dramatic federal spending cuts and debt, setting up another showdown in a divided Congress.

Those first showdowns will come over the next three months, when the government's legal ability to borrow money will expire and temporary financing for federal agency budgets will expire.

Polk predicted a handful of other trends for 2013. Sales will grow for big pickups, which are very profitable for automakers. Demand has been depressed for five years due to the weak economy, but should get a lift in 2013 thanks to redesigned trucks from GM, Toyota and Ford.

Polk also said the midsize sedan segment will continue to lead the industry. It's now at 18.5 percent of the market, 2 percentage points larger than any other type of segment.

"Recent redesigns of nearly every vehicle in the midsize segment are forcing more competition and continued growth," said Tom Libby, Polk's lead North American analyst.

Polk joins many other analysts in predicting 2013 sales at or above 15 million. The consulting firm LMC Automotive, for instance, expects 2013 sales of around 15 million, up from 14.5 million in 2012.

Auto sales peaked at about 17 million in 2005, but dropped to 10.4 million in 2009, the lowest level in more than three decades.

(Source: The Detroit News, 01/02/13) 

September Surge Changes Auto Forecasters' Tone

New-vehicle sales hit their fastest annual pace in more than four years in September, but the month could have been even better. After all, fleet sales were flat, fuel prices were unseasonably high and automakers laid off the incentives. 

September's seasonally adjusted annual selling rate of 14.9 million exceeded expectations by a wide margin, and the surge was driven entirely by retail gains, said Adam Jonas, Morgan Stanley's top auto analyst.

So are long-term forecasts being revisited?

The strong September -- in which sales rose 13 percent to 1,188,899 units -- has so far not prompted official forecasts to rise. But it has changed the tone of conversation among automakers and analysts, many of whom had revised 2012 forecasts downward since the first quarter.

Bill Fay, Toyota Division general manager, still expects 2012 industry sales of 14.3 million but now adds "and maybe a notch above."

R.L. Polk hasn't raised its forecast of 14.3 million this year and 15.2 million in 2013, "but we reviewed it for upward revision after August and September sales beat expectations," said Tom Libby, North American forecast manager.

TrueCar.com is still forecasting 14.4 million this year and 15.0 million next year.

Morgan Stanley's Jonas called September's 14.9 million annual selling rate "dreadful, no better than 1978." But he says the underlying strength of the market is consumers being forced to replace the aging U.S. vehicle fleet, which he says averages 11 years old with 130,000 miles on the odometer.

Fleet volume rose just 1 percent in September and retail jumped 15 percent for the seven largest automakers, which dominate sales to fleet buyers, according to theAutomotive News Data Center.

"If fleet had been as strong as retail, the September SAAR would have been 15.2 million," Jonas said.

Kurt McNeil, General Motors' U.S. sales boss, said GM pickup sales slipped because fleet volume fell in September, but the company isn't turning to incentives on them.

"We don't necessarily have the newest truck in the industry, but we still have the lowest incentive spend," he said.

Industrywide, per-vehicle incentives ranged from flat to slightly lower in September, according to TrueCar.com.

And gasoline prices, which normally decline after the summer peak driving season, remained unusually high. The mid-September average of $3.83 a gallon was only five cents off the year's highest level, the U.S. Energy Information Administration said.

That may have helped sales of fuel-efficient new cars in September, TrueCar.com analyst Jesse Toprak said, but it was a damper on trucks.

"Trucks are hurt by lingering high fuel costs," he said. "Small cars are remarkably strong, but trucks are weak."

In addition, small businesses may be spooked by the uncertainties of the upcoming presidential election and Congress' so-called Dec. 31 fiscal cliff and therefore deferring pickup purchases, Toprak said.

"Truck sales are based on prospects of business growing," he said. "Maybe the deals are not that great on trucks and so buyers are waiting. We'll probably see more incentives in the fourth quarter as is typical."

GM's McNeil believes auto sales will continue to outperform the slow recovery pace of the general economy, "which is particularly good news for GM as we walk into a cadence of new product in 2013 and 2014."

(Source: Automotive News, 10/15/12) 

Drivers Want -- And Will Pay -- For More Efficient Cars

A growing number of Americans are demanding not only more fuel-efficient cars, but those that run on cleaner alternatives to gasoline -- and they're willing to pay, according to a pair of new studies. 

That could be good news for manufacturers fretting about the cost of meeting the government's strict new Corporate Average Fuel Economy, or CAFE, mandates requiring an average 34.5 mpg by 2016 and 54.5 mpg by 2025.

"Cost is a key issue," especially with more radical alternatives such as electric propulsion, said Phil Murtaugh, the head of California-based Coda, a start-up in the emerging market for electric vehicles.

A study conducted for Ford Motor Co. by Penn Schoen Berland found that seven in 10 drivers are taking steps to reduce gas consumption, most reporting they are driving less and nearly half saying they've slowed down on the highway. Others have adopted somewhat more extreme steps, such as drafting behind larger vehicles.

Meanwhile, 21% said they have purchased a newer vehicle that is more fuel efficient.

And 25% told researchers that if they had an extra $1,000 available at the time they made their next vehicle purchase they would opt for a hybrid rather than a conventionally powered vehicle. That could signify a notable shift in consumer sentiment. Conventional wisdom has suggested motorists want greener, more fuel-efficient products but weren't willing to pay for the necessary features to get there.

Ford is one of a growing number of manufacturers offering steadily more hybrid technology options, such as the gas-electric version of the 2013 Fusion sedan and the hybrid and plug-in versions of the new C-Max model. Toyota has promised to introduce hybrid versions of virtually every model in its lineup over the next few years and its Lexus luxury brand hints that it could have several more dedicated hybrid models coming.

A separate study by Phoenix Marketing International finds that a solid majority of American motorists are now willing to consider some form of alternative propulsion, whether hybrid, pure battery-electric or something even more radical. In fact, the vast majority of buyers under 40 see that as a real-world choice to consider, the study indicates.

Surprisingly, perhaps, the study found those in the luxury market more open to alternative propulsion, by a margin of three-to-one. In more mainstream product segments it's still two-to-one willing to consider alternatives.

The younger the motorist the more open they are, with only 10% of those under 40 not open to cleaner or more fuel-efficient powertrain technology, reports Phoenix, which polled in July 1,800 consumers who were either just in the market or were still looking for a new vehicle.

"For automotive marketers that means there is immense opportunity for developing and delivering alternative fuel messaging around their brand," said Phoenix Senior Research Analyst Kevin Severance, especially in marketing aimed at younger buyers. "As alternative fuel vehicles continue gaining popularity, cultivating and communicating an alternative fuel image will be critical. Honing related messaging will be step one in persuading consumers who are unsure about the technology to consider their products."

Among non-luxury brands, Toyota had the most buyers inclined to consider alternative fuel vehicles, the survey revealed, followed by Ford, Honda and Chevrolet. Among luxury brands, BMW led the way, followed by Lexus, Mercedes-Benz and Audi.

The biggest challenge for the auto industry is to translate purchase interest into an actual purchase. Recent studies have repeatedly shown that shoppers will at least look at hybrids and alternatives but when it comes time to buy they largely return to conventional alternatives.

But while hybrids and other battery-based vehicles currently account for barely 3% of total new vehicle sales, the total number of those vehicles registered during the first half of the year rose by roughly two-thirds compared to a year earlier, according to another new study by Experian Automotive.

And those who market diesels, another fuel-efficient alternative, are also reporting strong results. Volkswagen has seen demand for the diesel-powered version of its Passat sedan climb to 26% and now believes it will nudge beyond 30% once it expands capacity.

As for battery-electric vehicles, Murtaugh told TheDetroitBureau.com he expects that as consumers become more comfortable with cost and range issues he expects demand to rise, although it could take years before that technology moves into the mainstream, he acknowledged.

(Source: The Detroit Bureau, 09/13/12) 

Auto Sales Rate for August Projected to Reach 4.5-Year High

An influential auto forecasting firm said on Friday it expects August to yield the highest U.S. retail sales rate in four-and-a-half years. 

LMC Automotive projected the seasonally adjusted annual rate of sales to individual buyers at 12.3 million units. The overall SAAR, which includes fleet sales, is forecast to reach 14.5 million vehicles, on par with this year's high of 14.47 million in February.

"The strength in August light-vehicle sales takes some of the pressure off expectations for the balance of the year, but a high level of risk lingers," Jeff Schuster, senior vice president of forecasting at LMC Automotive, said in a statement. "We expect the current seesawing in auto sales to continue for the foreseeable future, but the overall picture in 2012 remains positive."

LMC and four other independent forecasters see August's selling pace falling within the range of the year's previous seven months.

TrueCar.com issued the lowest August projection, an overall SAAR of 13.9 million, the same as May. LMC's forecast of 14.5 million was the highest.

Through July, 8.4 million light vehicles were sold in the United States, up 14 percent from a year earlier. July sales rose 9 percent.

But citing consumer and business uncertainty from Europe, the November presidential election and the prospect of a Congressional deadlock, some analysts are lowering full-year forecasts. Both LMC and TrueCar.com earlier this month cut 200,000 units from full-year outlooks and are now at 14.3 million, and Morgan Stanley last month slashed its forecast to 14.4 million, 400,000 units lower.

In 2011, U.S. auto sales totaled 12.8 million.

Automakers will release their August totals on Sept. 4.

LMC is the auto forecasting partner of J.D. Power and Associates.

(Source: Automotive News, 08/24/12) 

More Year-Old Cars Have Prices Almost the Same as New

A growing number of used cars are selling close to the same price as a new one, Kelley Blue Book reports.

The gap between new- and used-vehicle pricing in many segments has narrowed significantly. New vehicles are now selling, on average, for 11.5% more than a comparable 1-year-old used car, KBB says.

Used subcompact and compact cars only offer consumers an average savings between 5% and 7% percent. Used hybrid cars and midsize crossovers are within 3% to 4% of an equivalent new vehicle.

The shrinkage of the price gap defies what buyers usually expect, that they can save thousands by buying a rental car being booted from the fleet or other slightly used car. KBB's study calls into question whether it's worth buying slightly used, instead of new.

The difference varies by model. A new 2012 Toyota FJ Cruiser lists for $28,500, only $244 more than a used one. A new 2012 Ford Focus is $3,000 on average less than a 2011 version, but the 2012 was all-new and vastly improved.

The vehicle in which the used price is closest to new? That would be the 2011 Chevrolet Camaro, which has an average price of only $126 less than the cost of a new 2012 model. 

(Source: USA Today, 08/06/12) 

The Home Becomes a Piggy Bank Once Again

Home-Equity Loans Make A Comeback.

If a fancy new car appears in your neighbors' driveway and you wonder how in the world they can afford it, consult the consumption playbook circa 2006. 

Nearly seven percent of new-car buyers used a home-equity loan to finance the purchase during the first half of 2012, according to CNW Research of Bandon, Oregon. That's 52 percent higher than the rate in 2011, and the first meaningful jump in the use of home-equity loans for car purchases since banks pulled back on such lending starting in 2008. It's also further evidence that the housing market is stabilizing, and that housing may eventually help boost an economic recovery.

The widespread use of home-equity loans to fund car purchases, home renovations, college and vacations was a hallmark of the housing bubble. As home values skyrocketed and equity rose, many home owners basically considered home-equity loans to be found money, especially since they figured home values would rise indefinitely. That gusher of cash pushed sales of cars, appliances and other things to record levels in 2006 and 2007.

The housing bust ended that party, of course, and home-equity lending dried up as home values fell and equity evaporated. But now, home-equity lending is making a comeback, especially in areas where the housing market appears to have stabilized.

In six states -- California, Colorado, Florida, Illinois, New Jersey and Rhode Island -- more than 10 percent of buyers financed a new car with a home-equity loans this year, according to CNW's data. Such financing is still far below peak levels of 2007, but it may be high enough to keep car sales from falling, even as the overall economy weakens.

Any pickup in home-equity lending is a tangible sign that banks believe the housing bust is over. "The housing market has probably bottomed, which gives lenders a lot more confidence when extending home-equity credit," says Keith Leggett, senior economist at the American Bankers Association. "They're less likely to do that in markets where prices are still falling."

Buyers qualifying for such loans are most likely wealthier consumers with good credit who have owned their homes long enough to have equity that wasn't zeroed out by the housing bust, which slashed home values by about 33 percent, according to the S&P/Case-Shiller home-price index. Using a home-equity loan to finance a car or other purchase -- if you're lucky enough to qualify -- can be a shrewd move, because the interest on home-equity loans is usually deductible. There's no such deduction for ordinary car or consumer loans. So home-equity borrowing can cut the cost of a major purchase by thousands of dollars.

There are signs that consumers are starting to use home-equity loans for other types of spending as well. Harvard University's Joint Center for Housing Studies predicts that spending on home improvements will pick up by the end of 2012 and grow by double-digits in 2013. That forecast doesn't measure home-equity lending per se, but it does by proxy, since many homeowners use home-equity loans to remodel.

After prior recessions, the housing sector has been a key source of growth that helped drive a recovery. But this time, it's been a net drag on the economy, one reason the so-called recovery has been so weak. A pickup in home-equity borrowing won't be a cure-all, and it may never reach the heights it did during the housing bubble. But it may finally signal that the housing market is getting back to normal.

(Source: U.S. News & World Report, 07/30/12) 

Subprime Car Loans Return to Favor Among Auto Lenders

Consumers without top-tier credit are finding it easier to get new car loans, as banks and other lenders are lowering the scores needed to qualify. 

While that means additional sales for automakers, and enables more motorists to get into new cars and trucks, it raises questions as to whether lenders are falling into the same risky lending practices they followed before the recession.

"There's a lot of lenders now that are into the subprime business," said Jody Lee, sales manager at Taylor Chevrolet in suburban Detroit. "What used to be a good score at a 650 or 700, now 550 is a good score."

During the first quarter of this year, total U.S. car loans totaled $52.5 billion. That's 49 percent higher than the same period in 2009 -- the recession's low point -- according to Equifax's National Consumer Credit Trends Report.

Also during the first quarter, the average amount financed on new vehicles rose by $589, to $25,995, and for used cars by $411, to $17,050.

Furthermore, buyers are stretching out payments for longer terms: The average length of new- and used-vehicle loans jumped a full month during the first three months of this year, to 64 and 59 months, respectively.

More loans and looser lending restrictions have helped boost new car and truck sales to levels not seen in four years. Estimates call for 14 million to 15 million vehicles to be sold in the U.S. this year, about 30 percent higher than in 2009.

"We've certainly seen the market loosen up for subprime," said Melinda Zabritski, director of Automotive Credit at Experian, a consumer and business credit reporting firm. "We're seeing it very close to what it was in pre-recession levels, but those days we probably will not return to. I think you'll still see the loans themselves a little more conservative."

Bank risk professionals expect a lending increase to borrowers with less desirable credit. The analytics company FICO polled 192 risk managers at banks throughout the U.S. last month and found that half predict growth in subprime auto loans will lead all other sectors for 2012.

It's easier for banks to loan money when interest rates are low and the rate at which banks loan money to one another is close to zero percent. That's one reason subprime auto lending is already on the rise.

Room for subprime to grow
Subprime consumers generally have credit scores of 640 and below, though cutoffs vary by lender. Scores range from 300 to 850; people with scores above 720 are generally given favorable interest rates, because they are seen as more likely to pay their bills.

The average credit score for people financing a new vehicle remained substantially higher than subprime during the first quarter, but it dropped six points, to 760; for used vehicles, the average credit score dropped four points, to 659, according to Experian Automotive's analysis.

Experian -- one of the major credit reporting firms -- expects the average credit score for new-car buyers could fall as low as 750. That estimate is comparable to credit scores during the first quarter of 2008 -- just before the collapse of the economy and auto industry -- when credit scores averaged 753 for new-car buyers and 653 for used-car buyers.

The subprime category typically comprises about one-quarter of the new-vehicle finance market, Zabritski said. That explains why the average credit score for new car loans is still higher than the subprime average. But there's still room for the subprime category to grow.

The number of vehicle loans made to people with less-than-desirable credit jumped 11.4 percent this year.

Lenders are not only loosening their leashes, but more subprime customers are also seeking out auto loans. Those subprime customers, however, aren't getting the rates they could, said Hank Hubbard, president of the nonprofit Communicating Arts Credit Union in Detroit, which helps those with poor credit refinance loans at better rates. Many, he said, are paying 25 percent a year.

"You could argue from a social perspective that disadvantaged people paying 20 percent interest rates is not such a good thing," said Edmunds.com CEO Jeremy Anwyl, "but from a credit perspective, it's not a bad practice."

Consumers 'have a choice'
Hubbard said for the past few years, many of the credit union's customers who have credit scores below 640 had the impression they would not be approved for an auto loan -- or would be approved, but only with a sky-high interest rate.

"People don't realize they have a choice," Hubbard said. "(The lenders) are taking people with decent credit and charging them high amounts." He points to a story of Aaron McIver of Hazel Park, MI, who was saddled with a six-year used-car loan with a 24.95 percent annual percentage rate. He had a monthly payment of $619 and was on track to pay as much in interest as he would for his 2005 GMC Yukon. CACU refinanced him twice and lowered the monthly payments to $386.

(Source: The Detroit News, 07/23/12) 

Newspapers lose auto ad dollars

Dealers have turned the page on newspapers, at least when it comes to buying advertising in them.

The annual National Automobile Dealers Association's state-of-the-industry report released last week highlights just how much their choice of advertising media has changed in the past decade.

At the typical store, NADA says, newspapers accounted for more than half of total ad spending in 2001. Last year it was just 20 percent. The Internet, in contrast, accounted for 5 percent a decade ago and 25 percent in 2011.

But all that lost newspaper advertising didn't go to the Web. TV and radio spots, as well as direct mail, are up as a percentage of the total compared with 2001.

Cha-ching! Dealership Profits Soar

Used car sales driving profits.

Used Cars Drive Growth

Rising new-vehicle sales are boosting dealership profits. Most public retailers reported much higher first-quarter earnings, and other dealers tell similar stories.

All dealership profit centers are contributing. But it's in used-vehicle sales that many groups see big growth opportunities -- along with some challenges, the greatest of which is a lack of inventory.

"The biggest driver for used-car sales growth is the ability to procure used cars," says Bryan DeBoer, Lithia Motors Inc.'s COO. "We, at the top of the food chain, have a big advantage over the independent car dealer who doesn't take in the amount of trade-ins we do."

But for the Medford, Ore., dealership group to reach its goal of selling 60 used vehicles per store per month, it will have to do a better job at procurement, DeBoer says. In the first quarter, Lithia sold 45 used vehicles per store per month, he says.

"We have to open up our pipeline of used vehicles -- meaning get them from the street," DeBoer says.

Large retailers are using innovative tricks to get used vehicles.

Most say they are relying less on auctions. Instead, they look to increase trade-ins from new-car sales. They also are buying more used cars from Internet and newspaper ads. And they are using so-called equity software that combs their own databases to find existing customers with equity in their cars who might do a trade-in.

Big retailers say they are reconditioning more trade-ins for higher-profit retail sales instead of wholesales through auction.

Retail First
At Penske Automotive Group Inc., retail sales of used vehicles jumped 27 percent in the first quarter. The spike helped boost Penske's first-quarter profits by 38 percent. CEO Roger Penske attributes the increase in used-vehicle sales primarily to an internal program dubbed Retail First.

"Our initiative today is to recondition these used cars where they can be sold in retail rather than wholesale," Penske says. "It gives us a new customer."

And it results in bigger profits than wholesale yields. On average it costs Penske about $500 to $600 to make cosmetic and safety improvements to used vehicles, Penske says. But the average gross margin per used vehicle sold at retail is $2,043, Penske's earnings report says. Roger Penske says the company makes about $150 on a wholesale sale.

Vince Sheehy, president of Sheehy Auto Stores in Fairfax, Va., also wants to see more retail and less wholesale. He is relaxing his used-car standards to capture more lower-end retail buyers.

"Sometimes you put new tires on a car, and then certain people can't afford the car. So if you can bring the price down by $750, that can bring the sale into play," Sheehy says. "Wholesaling means someone else is going to retail it. We want more of those opportunities, but not anything that gets in the way of our reputation."

Sheehy's used-car sales were up about 5 percent in the first quarter compared with a year ago, and his used-car profitability was up about 10 percent, he says.

Sheehy Auto Stores is ranked No. 31 on the Automotive News list of the top 125 U.S. dealership groups, with total new-vehicle retail sales of 15,669 units in 2011.

Vince Sheehy also is looking to increase trade-ins. Starting earlier this month, he put so-called equity software in each of Sheehy's 15 dealerships.

Kuni Automotive also uses equity software and has spent the past two years using technology to improve vehicle acquisition, COO Joe Herman says. Used-car volume, revenue and gross profits are up significantly, and Kuni is up to 1.13 used vehicles sold for each new one.

In the last 90 days, Herman has added a new procurement specialist position to several stores. That person uses specialized software to seek inventory on online vehicle auctions.

"The dealers that can access inventories with some of those new Web tools can increase the size of their retail business because they can expand their reach beyond their physical location," Herman says.

Kuni Automotive of Vancouver, Wash., is No. 104 on the Automotive News list with retail sales of 6,683 new vehicles in 2011.

At Swope Automotive Group in Louisville, Ky., sales managers "source the service lane" for potential used-car inventory, says Cary Donovan, director of used-vehicle operations.

"You may source the appointments the evening before customers arrive," Donovan says. "You'll know from that particular group if you have a customer who's been in a car for two to three years."

Swope Automotive Group ranks No. 71 on the Automotive News list with 8,784 total new-vehicle retail sales in 2011.

"You've got to fish in some areas we didn't fish in before," Donovan says.

Spend more
Used-vehicle sales continue to be a strength for Asbury Automotive Group.

"Our stores broke all-time first-quarter company records for used retail revenues and unit sales," says Asbury COO Michael Kearney.

Group 1 CEO Earl Hesterberg says he was surprised by the used-vehicle market's strength to start the year. Because December was a great month for new-vehicle sales, Group 1 started January with more good trade-ins on hand.

In the first quarter, Group 1's used-vehicle unit sales soared 24 percent and retail used revenues jumped 28 percent. Gross profit on used vehicles jumped by 26 percent.

And "there's still excellent growth room" going forward, Hesterberg says. "The more trade-ins we get, we can be more competitive and have more attractive merchandise."

Group 1 is retailing all but poor-quality trade-ins.

"Most of the things that go to auction now from our company are really junk," Hesterberg says.

AutoNation Inc. and Sonic Automotive Inc. are focusing on using the increase in new-car sales to boost their used-car inventories and sales with trades as well.

"We know that we do not want to be an auction buyer other than in very select situations," says AutoNation COO Michael Maroone. "We aggressively went after our appraisals and converted almost 50 percent, which is an all-time high for us."

In the past, AutoNation's typical close ratio on trade-ins was in the high 30s, low 40s.

AutoNation retailed 45,500 used vehicles on a same-store basis in the first quarter, up 8 percent. Same-store retail used-vehicle gross profit increased 5 percent.

AutoNation continues to shift used vehicles between stores to find the best market, moving around 13,000 vehicles in the quarter.

Asbury has changed its view of lower-priced used cars.

"We used to avoid anything sub-$10,000," Kearney says. But now Asbury does a significant amount of business in the $8,000 to $12,000 price band, he says. "It gives you opportunity to reach so many more buyers."

Hitting targets
At Sonic, first-quarter used-car revenue rose by 9 percent and gross by 8 percent. Its closing ratio on appraisals was 48 percent. By selling 90 used vehicles per store in March, Sonic also hit a new milestone on its way to the goal of selling 100 used vehicles per store per month. Executives say they believe Sonic can achieve that goal by the end of 2012.

The long-term potential is even greater, Sonic President Scott Smith says. "That's a psychological number," he says. "There's a lot more upside to what we're doing."

Bryan DeBoer is confident Lithia will hit 60 used cars sold per store per month, but he says it won't happen by year end for his company.

"We believe the market is there right now; it's really a matter of our stores being able to find those vehicles and then attracting the customers to gain awareness that we are a broader used-car dealer," DeBoer says. "We'll get there, probably sooner than later."

(Source: Automotive News, 04/30/12) 

Domestic Automotive Brands Score Well in Total Value

Volkswagen, Hyundai and Ford are leaders in Strategic Vision's newest Total Value Index study. But for the first time in over a decade, American manufacturers paced the number of Total Value winners in vehicle categories, with 11 segment leaders.

Another big change: four alternative fueled vehicles -- Chevrolet Volt, Honda Civic Hybrid, Nissan Leaf and Lincoln MKZ Hybrid -- led their respective segments. The firm says that in the past, alternative-powertrain vehicles didn't lead because simply offering better fuel economy did not provide enough overall value to make a difference. The Tustin, Calif.-based market research firm says the change implies a watershed moment for acceptance and desirability of hybrids.

"Even though the median price of a Chevy Volt was $43,000, owners believe that for every dollar spent, they got more than did buyers of other vehicles," said Alexander Edwards, president of the company. "Customers had tremendous value appreciation for (the vehicle's) technical innovation, warranty, standard equipment and certainly fuel economy."

In Strategic Vision's study, Volt not only had the highest Total Value score in the Mid-Size Car Segment, but also the highest score of any vehicle in the entire study. Owners may have a predilection to love cutting-edge technology, as they had a median annual income of $133,000, with 37% having post-doctorate degrees, putting them solidly in the early-adopter category. Another alternative-engine vehicle, the all-electric Nissan Leaf, won in its segment for technical innovation and standard equipment.

But Edwards -- giving a nod to the fact that such vehicles still make up only a couple percent of the U.S. auto market -- said cost benefits, not emotions, will be what drives broad acceptance and larger volumes. "A word of caution to manufacturers is to realize potential buyers are smarter and more empowered with information than ever before. A hybrid needs to make sense for larger sales volumes to occur. Hybrid ownership is still primarily 'statement'-driven, but things are changing."

General Motors also had segment winners with Cadillac CTS Sedan and CTS Coupe, Chevrolet Corvette Coupe and the GMC Yukon. Honda had several winners as well, with the Honda Civic Hybrid, Accord Coupe, Odyssey, Ridgeline and Acura TSX Wagon. Hyundai continued its winning streak because of design, features and mileage from models like Tucson. Ford's segment leaders included the Lincoln MKZ Hybrid, Mustang Convertible, Flex, and the F-Series trucks.

Dodge Durango was another winner, and Volvo won because of strong product and comprehensive warranty with several of its vehicles. MINI Cooper won for the seventh year in the Specialty Coupe segment, per the study.

Strategic Vision says the Total Value ranking is a combination of subjective owner statements on 442 attributes combined with what the firm characterizes as immediate and long-term economic factors like warranty, technical innovation, standard equipment, and vehicle mileage ratings. The survey side of the study gets into political party affiliation, personal media habits and hobbies, and any ethnicity they claim.

"The way you become a value leader in this economy is to create an exceptional product that is affordable. Price alone will not determine value," said Darrel Edwards, founder and executive director of Strategic Vision.

(Source: Marketing Daily, 03/16/12)

2011 Was a Record Year for Dealership Profits

Average dealership profits in 2011 were the highest since the National Automobile Dealers Association began tracking the data in 1970.

The average dealership made a record $785,855 in net pretax profit in 2011. Net pretax profit as a percentage of total sales was 2.3 percent, a level not seen since at least 1978, said Paul Taylor, NADA's chief economist.

It's such a good time to be a dealer that dealerships even made money on new cars last year. The average retail net profit for a new vehicle was $23 in 2011 vs. a loss of $180 in 2010.

"It's normally a loss," Taylor said. He credited the turnaround to an improving economy, fewer dealerships in competition with one another and historically low interest rates.

With those trends continuing this year and probably through 2013, dealers could see a golden era of profitability if they stay disciplined, experts said.

"'Make hay while the sun shines' is the operative phrase here," Taylor said.

In 2011, interest rates alone made for the difference between a profit and loss on each new-vehicle sale. Because of the low rates and manufacturer incentives, the average dealership had a floorplan credit of $48 last year instead of the $200 expense typical in a growth year, Taylor said.

Used-car net profit is up slightly, he said. It went from $252 per vehicle in 2010 to $269 in 2011.

Sales in the new-vehicle department rose by 15.6 percent; in the used-vehicle department, by 9.8 percent; and in the service and parts department, by 5.7 percent. On a per-vehicle basis, advertising and rent expenses fell last year.

Service and parts absorption -- the department's gross profit as a percentage of total fixed overhead expense -- dropped from 59.6 percent in 2010 to 57.8 percent in 2011. That's to be expected, Taylor said: Fixed costs go up when vehicle sales rise, and service and parts sales weren't increasing as fast.

The overall rosy profit picture makes for a lot of happy dealers and those who advise them.

"It's a lot more fun to work with our dealers than it was three years ago," said Dan Thompson, a Pennsylvania dealer accountant. "I think they're going to have a good run."

Dealers continue to prosper from the lessons learned during the industry downturn, Thompson said. In particular, they sharpened their focus on used vehicles and the parts and service business.

In 2010, dealers generated as much gross as three years earlier on sharply lower vehicle sales volume, Thompson said. In 2011, dealers continued to perform at those higher levels while enjoying the benefit on incremental vehicle sales.

Going forward, dealers are challenged by how much payroll to add to the dealership.

"Our experience has been dealers have asked less people to do more, primarily because they are not all that confident that sales increases are here to stay," Thompson said. "At some point, personnel will need to be added -- knowing when, how many and what cost is the key."

Dick Heider, a Colorado dealer accountant, also is keeping an eye on expense control.

"Everyone learned a lesson in expense control over the last few years, and I think this will not be forgotten soon," Heider said. "Dealers are smarter and more focused on efficiency within their stores now than in the past."

Dealers should analyze employee productivity and look for process efficiencies. "In what is now more of growth market, this may mean using the same number of people to accomplish a greater volume of work," he said.

Money also can be saved in other areas, such as computer vendor and utility expense, Heider said.

Much better software is now available from computer vendors outside the Big 2 providers, he said.

"While not fully equal to the Big 2, the strides second-tier vendors have made is providing very capable software and is worth a second look," Heider said.

While the payoff is longer term, he said, dealers also can cut utility bills by installing more efficient lighting, including lot lighting.

(Source: Automotive News, 03/23/12)

Automotive Recovery hits red-hot Stage 2

Strong March sales show surge has gone beyond 'need to replace' crowd.

This year's faster-than-expected sales recovery has entered a key new phase: "Want" buyers are joining the "need to replace" buyers who have been carrying the market.

With the strong February selling rate continuing into March, optimistic carmakers and analysts are boosting full-year industry sales forecasts. Last week, Volkswagen Group of America CEO Jonathan Browning said the company has increased its industrywide outlook to 14.0 million from 13.7 million.

Executives, dealers and analysts say pent-up demand has been unleashed, and lenders are making it easier for shoppers to do deals.

"Customers are having no trouble getting financed," said Nissan Division sales boss Al Castignetti.

But in a new development, they say consumers who simply want a slick new ride are turning up in showrooms, not just buyers who are trading in high-mileage vehicles.

"We're getting some 'want to buys' now," TrueCar.com analyst Jesse Toprak said. "The 'need to buys' are 13 million [a year] at best, so the industry needs those 'want' buyers."

Toprak is among those who have revised 2012 sales forecasts upward this year, in his case to 14.0 million from 13.8 million. He's considering a second 200,000-unit bump upward but will wait until March sales are reported April 3.

Dealers across the country sound confident, especially at high-flying brands such as Hyundai.

"Sales are tracking better than our best month ever," said Andrew DiFeo, CEO of Hyundai of St. Augustine in Florida. "The automotive market is really coming back."

March volume may not match February's 15.1 million selling pace. This month has no extra leap day, and the freakishly warm weather and stock market rally lack the surprise pop they had last month.

But most analysts expect a seasonally adjusted annual sales rate in the mid-to-high 14 millions, matching or exceeding January's 14.2 million SAAR.

Between August and February, the light-vehicle SAAR jumped 3 million units, "increasing our level of conviction for a continued recovery in demand," said Sterne Agee analyst Michael Ward.

Still, at least one potential cloud is on the horizon: rising fuel prices that Ward believes will hit household disposable income and consumer confidence enough to limit the March-to-May SAAR to 14.5 million.

But IHS Automotive analyst Rebecca Lindland says high fuel prices may drive auto sales because buyers want more fuel-efficient rides.

"Whatever they are trading in, it doesn't get nearly as good mileage as what they can replace it with," she said.

Hot brands are trying to ride the sales momentum. If Chrysler dealers either matched their total January sales by March 23 or sold half of their March target by March 15, Chrysler will increase their monthly volume bonus by 25 percent, said one dealer who asked not to be named.

The dealer said he's on pace for his best sales month in five years.

"The early March trend is through the roof," he said.

What's driving the surge? The improving economy, increased credit availability, a flurry of new products, and the aging vehicle population are all factors, analysts say.

Vehicle owners can't delay replacement purchases any longer. Noting the average U.S. vehicle is a record 10.8 years old, Morgan Stanley analyst Adam Jonas described the current U.S. fleet as "not just old, but creaky" with many vehicles having more than 100,000 miles.

Dealer principal Steve Landers of RLJ-McLarty-Landers Automotive of Little Rock, Ark., agrees.
"Lots of our trade-ins can't make it to the dealership driveway," he said. "We send the tow truck to their houses."

Kjell Bergh, chairman of Borton Volvo in Minneapolis, said he noticed a shift in buyer attitudes at the Twin Cities auto show this month.

"This year, people were going to the show because they intend to buy a new vehicle," he said. "We're moving out of the 'buy to replace' crowd to people with the confidence to vote with their dollars.

"Before, car owners were spooked. But now they are saying 'I don't have to replace my car but I want something new.'"

Jeff Schuster, top forecaster for the Americas at LMC Automotive, said: "Buyers are starting to loosen up a bit, finally. It's normally a fine line between 'want' and a 'need to replace but don't have to.' But we're seeing consumers much more willing to make a big purchase."

Overall, consumers are becoming less sensitive to bad news, many say.

"The mind-set is: 'It's OK to buy a car,'" Toprak said.

Consumer confidence has been rising, though it dipped slightly this month, which chief economist Scott Brown of Raymond James & Associates attributed to the pocketbook pinch of fuel prices.

Credit availability is much wider, and subprime lenders are expanding. Because Exeter Finance Corp. could securitize $200 million in auto loans, the subprime specialist is expanding to all 50 states this year from 13 states a year ago, CEO Mark Floyd said. "It's a pretty competitive market," he added.

Also, attractive new models are reaching the market, said Kelley Blue Book analyst Alec Gutierrez.
"Subcompact car sales will be especially strong," he said. "Not only are they cost effective, but [they] are of significantly higher quality than just a few years ago."

Two analysts have increased their North American production outlook. Sterne Agee's Ward raised his production forecast by 400,000 to 15.2 million units, including heavy trucks. Citing a 23 percent output increase in the first two months this year, LMC's Schuster hiked his light-vehicle forecast by 200,000 to 14.2 million.

Toprak said vehicle buyers are not spending beyond their means in 2012.

"This sales level seems to be sustainable and not a blip," he said. "The industry is healing its wounds on its own."

Jesse Snyder  Automotive News -- March 26, 2012

Leasing Boom? Not So Fast

Dealers looking for a big increase in leasing this year may be disappointed.

Some forecasters see a leasing boom this year and beyond. And one even suggested leases will account for 40 percent of new-vehicle deals by the end of the decade, up from 30 percent in 2007.

But new data from Experian Automotive show lease penetration for new-vehicle volume was flat in the fourth quarter last year -- down slightly, in fact, at 23.1 percent from 23.7 percent the year before -- after two years of growth. And that, the company says, is where it could stay.

"It's starting to look like this is what the market bears for leases," said Melinda Zabritski, director of automotive credit for Experian Automotive.

She isn't alone.

"There are real reasons why those who are optimistic about leasing should be optimistic, but the realities don't seem to be following those reasons," said Paul Cuevas, director of automotive finance for J.D. Power and Associates.

Cuevas cited three interrelated reasons why lease penetration seems to have topped out for now at around 20 percent of new-vehicle retail: Lenders are leery of again being burned by inflated residual values, consumers are keeping their cars longer, and low interest rates favor purchases over leases.

In addition, the downsized Detroit Big 3 have lowered their breakeven points since the recession. They're not as highly motivated to get units out the door by subventing leases as they were before restructuring.

A single quarter of lower lease penetration in the fourth quarter of 2011 doesn't make a trend. But the rate of increase in leasing has been diminishing ever since the third quarter of 2010, Power Information Network data show.

Lease penetration was 19.5 percent in the fourth quarter, down from 20.2 percent a year earlier, PIN said. Lease share of new-vehicle retail sales bottomed out at 10.3 percent in the third quarter of 2009.

Experian Automotive, using a different methodology, said lease penetration was 23.1 percent in the fourth quarter, down from 23.7 percent a year ago. For all of 2011, Experian Automotive said, the average lease penetration was 23.7 percent, up only a fraction from 23.5 percent in 2010.

Zabritski said that leasing is back to around the same level it was before the credit freeze and the recession. Maybe it's too much to expect leasing to keep growing beyond that level, she said.

"This tends to be about where it had been, going back as far as 2006, before we had all these troubles," she said.

Still, there are some reasons for optimism.

The growth in leasing has enjoyed a tailwind in the form of higher used-car prices. Used-car prices have stopped increasing like they did in the past couple of years, but they are still at a high level in historical terms.

Data from ADESA Auctions Inc. show that the average wholesale used-vehicle price at auction was $9,878 in December 2011. That was a 9.5 percent increase from December 2008 but only 0.5 percent increase from December 2010.

Higher used-car prices mean auto lenders are less likely to lose money on lease returns. The used-car shortage that's supporting used-car prices is expected to persist at least through this year.

Leasing also remains high for luxury import captives such as Mercedes-Benz Financial, at 64 percent leasing in the fourth quarter; or BMW Financial Services, at 62 percent leasing, according to Experian.

Finally, several automakers have expressed an interest in higher lease penetration. GM bought the former AmeriCredit in October 2010 in part to get closer to the industry average in leasing. The company said it is unlikely to reach industry average because it sells a high percentage of trucks, an area in which leasing is less popular.

GM reported its U.S. lease penetration was 11.1 percent in the fourth quarter, down from 12.9 percent a year ago. For all of 2011, GM's lease penetration was 13.2 percent, up from 9 percent in 2010, spokesman Jim Cain says.

According to Experian Automotive, captives for the three biggest Japanese brands had above-average lease share in the fourth quarter, with Toyota Financial Services at 30.6 percent, American Honda Finance at 40.8 percent and Nissan-Infiniti Financial Services at 45.8 percent. Those figures include their respective luxury brands.

Taking advantage of improved residual values, Hyundai Capital America, which serves both Hyundai and Kia brands, had a 53 percent lease share in the fourth quarter, according to Experian. VW Credit had a 53.7 percent lease share.

However, leasing has become pretty much the domain of the captive finance companies as banks stay away, J.D. Power's Cuevas said.

The manufacturers want "to shorten trade cycles and length of ownership," he said, adding: "Leasing definitely does that for the manufacturer. There's also a higher propensity for that customer to purchase a similar-make vehicle if they come from a lease."

Leasing is likely to grow more rapidly if and when the manufacturers pour enough incentives into it to make that happen. For the most part, that doesn't seem to be the case, Cuevas said.

He added: "A huge factor in lease vs. purchase is the lease offer itself."

------------------------------

Why Leasing Growth May Stall

Auto lenders are risk-averse: Lenders got badly burned on inflated residual values in the credit freeze and the recession. In 2008, the domestic captives lost billions when the bottom fell out of resale values for big pickups and SUVs coming off leases. Ford Motor Credit Co. and Ally Financial Inc. have come back in leasing to an extent, but big banks' auto finance units, such as Chase Auto Finance, have largely stayed away.

Customer demand is changing: Customers are keeping their cars longer. The average trade-in is now 6.5 years old, according to the Power Information Network. The average car on the road is close to 11 years old, according to R.L. Polk Co. Customers are less interested in 3- or 4-year leases, J.D. Power's Paul Cuevas said. Not only that, there has been a shift to smaller, more fuel-efficient cars, an area in which lease penetration historically is low, he said.

Interest rates are low: Because interest rates are low -- the prime rate is only 3.25 percent -- it's relatively cheap, and certainly less risky for lenders, to buy down the interest rate on a loan instead of taking a chance on residual values, Cuevas said.

------------------------------

(Source: Automotive News, 03/07/12)

Car Buyers Finding Fewer Options When It Comes to Options

When it comes to ordering new cars, buyers are finding you can't always get what you want.

Automakers are drastically cutting the potential combinations of trim levels and options in a trend that recently has accelerated:

• Buick offers its new Verano compact in only 18 potential combinations of trims and options.
• Volkswagen slashed the ways you can order a Passat midsize sedan from 148 to 15.
• Toyota cut the ordering complexity of its current-generation Sienna minivan by 80%.

Automakers say fewer choices lead to higher quality because they perfect the few configurations. It avoids "creating complexity for the sake of complexity," says Chuck Russell, General Motors director of compact cars in North America.

It also cuts costs with fewer combinations to plan for and track on assembly lines. And it simplifies inventory planning for dealers.

One way automakers cut complexity is to herd options into "packages." Sienna's "preferred" package, for example, bundles power side doors with satellite radio. To get a Passat with a sunroof, you also must buy the premium sound system.

The potential downside: "You end up buying things you don't want or need in order to get things you do want or need," says John O'Dell, a senior editor for car research site Edmunds.com.

But automakers say the lower costs may be passed on to buyers and that they've gotten better at figuring out bundles buyers want.

"It's actually a relief. They are removing the work of trying to figure out what I want," says Kristen Andersson, senior analyst for shopping site TrueCar.com, who says buyers can even end up happier, with goodies they wouldn't have ordered but later love.

Not all makers are embracing the trend. High-end brands are more likely to still let buyers pick and choose. About 30% of Porsche buyers, for instance, custom order their cars. "It's expensive to do it the way we do it," spokesman Dave Engelman says. "It slows down the assembly line."

And even mainstream makers are going that way for key models.

Chrysler Group, for example, has cut combinations on many vehicles, reducing the number of ways you can order some of its biggest-selling vehicles for 2012, like the Dodge Durango crossover or the Grand Caravan minivan. It reduced trim levels to five, down from 12. But for its $15,995-to-start, all-new 2013 Dodge Dart compact, it is allowing custom factory orders in up to 100,000 combinations.

Dodge Director Richard Cox says à la carte choices include "citrus peel" paint -- a "vivid greeny yellow" -- and push-button ignition. "They might want the 8.4-inch touch-screen but don't want navigation. We give them the ability to get that (without having to buy) a $3,000 package."

How does a plant handle that without driving up cost? "World-class manufacturing," says Cox.

(Source: USA Today, 02/27/12)

Sizzling February Sales Point to a Bigger Year

New-vehicle sales are on fire in February, by almost all accounts. Now forecasters are recalculating -- and figuring on a bigger year than they expected just weeks ago.

The February selling rate is expected to hit 14 million units for a second straight month -- a surge that has prompted several analysts to boost their full-year forecasts for 2012.

J.D. Power and Associates expects February's seasonally adjusted annual rate of sales to be 14.0 million. TrueCar.com predicts a 14.3 million SAAR for the month, topping January's 14.2 million rate and up a million units from February 2011.

"This looks like the real deal," said TrueCar analyst Jesse Toprak.

Retail sales are driving the growth, said John Humphrey, Power's head of global automotive operations. He expects a retail SAAR of 12.0 million for the month, up from 11.0 million a year earlier, which would compensate for relatively lighter fleet volume.

"We're increasingly confident that the fundamentals are in place to support an upbeat outlook for the coming year," Humphrey said.

Carmakers and dealers are sounding buoyant, too.

"We're seeing some positive sales momentum in February," said Erich Merkle, Ford's chief sales analyst. "We're on a nice pace, a healthy sales increase over last year."

Many analysts are convinced that the market has shaken off its mid-2011 swoon and is in a sustained recovery from its 2009 low of 10.4 million unit sales. Indeed, February looks to be the sixth straight month with selling rates above 13 million.

Toprak forecast that February industry incentives would fall about $100 a unit from a year ago.

"We're selling the car, not the price," he said.

Since December, several independent forecasters have raised their 2012 outlooks.

Last week, IHS Automotive and Kelley Blue Book revised their forecasts to 13.6 million, up from 13.3 million. LMC Automotive, J.D. Power's forecasting partner, moved to 14.0 million from 13.8 million. TrueCar.com also moved to 14.0 million from 13.8 million, although Toprak said the change won't be official until after February sales are reported on Thursday.

Not everybody has changed since December. Morgan Stanley is sticking with its 2012 forecast of 14 million, said top analyst Adam Jonas. Polk is still at 13.7 million, although analyst Tom Libby said it will review that figure once February results are in.

Jeff Schuster, senior vice president of forecasting for LMC Automotive, said pent-up demand, greater credit availability and a rebound in leasing are helping boost auto sales this year.

"Overall, the economy is in a little better position," he said. "Two months is not a trend, but since September, we're seeing some (auto sales) consistency and we're easing back on the risk factors."

Toprak cited better economic fundamentals and pending 2012 introductions of "a slew of new products that give consumers the best choices they've ever had."

In addition, more leasing, low-interest car loans and greater lender competition for auto business are driving sales growth, he said.

Lenders have cut new-vehicle loan rates to the lowest level in at least four years, Experian Automotive reported last week. The research firm said the reason is that the cost of money is low and fewer car buyers are delinquent. The average interest rate for a new-vehicle loan fell to 4.52 percent in the fourth quarter from 4.84 percent a year earlier.

Despite adding 300,000 units to its 2012 forecast, IHS Automotive is carefully monitoring rising fuel prices and the potential for the European debt crisis to affect U.S. sales, said analyst Chris Hopson.

"Gasoline prices could hit a tipping point that would affect auto sales volume and not just the mix," he said. The five publicly traded dealership groups that have reported fourth-quarter financial results in recent weeks all cite robust sales so far in 2012.

"It feels like things are loosening up," said Lithia Motors COO Bryan DeBoer last week. "Through the first half of February things are looking pretty solid."

(Source: Automotive News, 02/27/12)

Is $4.50 a Gallon the New Gas Price 'Wall'?

Industry observers keep wondering what it would take to produce a wholesale shift in the American automotive marketplace. Despite near-record prices last Spring and the brief push to $4 a gallon several years earlier, U.S. motorists have largely continued buying the products they've always bought.

But a new survey suggests the market could hit a "wall" at $4.50 a gallon, with nearly nine of every 10 "new-vehicle intenders" telling CNW Marketing they would purchase a more fuel-efficient model "immediately" were prices to reach that level. And the vast majority of those buyers said they would specifically be in the market for a hybrid.

"Toss in the possibility of $5 per gallon gasoline," said CNW Marketing director Art Spinella, and the study would suggest the hybrid -- and presumably electric -- vehicle markets should "explode."

Or will they?

In recent years, whenever motorists were asked to speculate about what they'd do following a big fuel price spike they have predicted a sizable shift to more fuel-efficient products, whether switching from big SUVs to compact crossovers or from V-8s to hybrids. But, notes Spinella, that paradigm shift has yet to materialize.

Indeed, industry sales data reveals that hybrid sales actually slumped in 2011, despite the spring price hikes. For the year as a whole, all forms of battery-based products -– from mild hybrids like the Honda Insight to full battery-electric vehicles such as the Nissan Leaf -– totaled less than 3% of the overall market. And fully half of those sales were made up by just one model, the Toyota Prius, which has become the poster child of the green scene.

There have been some shifts: the full-size pickup segment has lost several points of market share, for example, with so-called personal-use buyers largely migrating to other segments. But there's been none of the wholesale shifting to compact and smaller products that some analysts had predicted.

And that should be no surprise. Earlier surveys routinely predicted dire results when motorists were asked about gas price hikes of as little as 50 cents to a dollar a gallon, results that failed to materialize when prices did, in fact, go from $2.00 to $2.50 to $3.00 and higher.

In April 2006, when gas averaged $2.75 in the U.S., noted Spinella, 45% of new car intenders said they'd consider a hybrid when the pump price reached $3.75. A year ago, 93% of buyers said they'd be hunting for a new, fuel-efficient model if prices stayed around $4.

With prices now nudging $4, the latest CNW survey probed the impact of $4.50 gas. It found 87% of buyers saying that'd be the trigger for a switch, with fully 93% of those intenders saying they'd take a serious look at a hybrid.

If past is prologue, the reality is likely to be far less substantial. Ever since the twin oil shocks of the 1970s, U.S. motorists initially panic then settle back to buy the vehicles that best suit their needs and budgets, even if that means higher fuel bills.

They're more likely to respond by curbing their driving, if recent federal mileage data is any indication. U.S. motorists have been steadily reducing their travel over the last several years. And the latest CNW Marketing survey found 87.6% of American motorists overall said they would drive "significantly less" if fuel prices topped $5 a gallon.

(Source: The Detroit Bureau, 02/20/12)

Big Retailers Say They Won't Neglect Used-Vehicle Sales

Forecasters predict strong sales of new light vehicles this year, possibly as high as 14 million units. But executives representing six major dealership groups -- five of them publicly held and one privately owned -- say they won't neglect their used-vehicle business, regardless of what happens with new cars and trucks.

"To be a good retailer you've got to be a good used-car merchandiser," says Mike Maroone, COO of AutoNation Inc., the nation's largest dealership group. "We've got a big appetite to continue to grow the used-car business."

The executives' commitment to used vehicles is understandable. After all, used vehicles were there when dealers needed them most

• Used cars and trucks kept dealerships afloat when new-vehicle sales tanked during the worst of the recession.
• Certified used vehicles filled gaps in new-car inventories last year when production cutbacks strangled the new-car supply after the earthquake in Japan.
• Old high-mileage used vehicles were a source of profits when dealers started selling the vehicles on their lots instead of at wholesale.

Having strong used-vehicle sales allows dealerships to offer more money on trade-ins, which boosts consumers' ability to purchase a new car and yields more used-vehicle inventory for their dealerships, the executives say. It's a virtuous circle.

"If new goes up and used goes down it's hard to get ahead in the business. You've really got to drive both segments," Maroone says.

'Success story'
Rob Kurnick, president of Penske Automotive Group Inc., the nation's second-largest dealership group, says the retail industry is large enough for his company to increase its new- and used- vehicle business simultaneously.

"Used (sales) has been a great success story for us over the course of the last year," Kurnick says. "We'll be able to continue with used cars as well as absorb new-car demand."

Steve Landers, partner at the privately held RLJ-McLarty-Landers Automotive, says his group opened three CarMax-like used-car stores -- one each in Little Rock, Ark., Shreveport, La., and Huntsville, Ala., -- over the last year or so. He said the group plans to break ground on a similar used-car store in northwest Arkansas within a month. The stores specialize in late-model used vehicles, he says.

"We're just being a good aggressive used-car dealer," Landers says.

But as retailers press for more used-vehicle sales, they concede that finding used vehicles, especially those suitable for certified used-vehicle programs, is more challenging now than it was a few years ago.

That's because of a shortage of off-lease vehicles, normally a major source of vehicles for certified used-vehicle programs. Industrywide off-lease volume fell 17 percent to almost 1.8 million in 2011, data from NADA Used Car Guide show. The guide company predicts that off-lease volume this year will plunge another 22 percent. Off-lease volume has dropped as a direct result of large banks and finance companies abandoning leasing in 2008-09.

Realistic challenge
Lithia Motors Inc., has set a long-term goal of selling 1.5 used vehicles for every new vehicle it sells, up from the almost 1-to-1 ratio it sells now, says CEO Sid DeBoer. Finding enough vehicles to reach that goal is a challenge, but possible, he says.

"It's having a qualified used-car person that knows the market and can find the cars," says the top executive at the nation's ninth-largest dealership group. "It's mining every other dealer in the areas we do business in; it's being at the auctions; it's working with manufacturers on lease returns and finance companies on repossessions.

"It's buying cars directly from the consumer -- that's a bigger piece of how we're finding cars. It's all of the pieces. It won't be a shortage of used cars that keeps us from our goal."

Michael Kearney, COO of Asbury Automotive Group Inc., says his company plans to continue its Asbury 121 (pronounced "1-to-1") program that it started in January 2010. Its goal is to sell an equal number of used and new vehicles.

The program emphasizes selling older, high-mileage vehicles taken as trade-ins. At the end of the third quarter of 2011, Asbury's used-vehicle sales equaled 82 percent of its new-vehicle sales, Kearney says.

"We have a used-car team that is fully dedicated to acquiring inventory and training the store to do trade walks to make sure we don't lose any trades," he says.

Pete DeLongchamps, vice president of manufacturer relations and public affairs of Group 1 Automotive Inc., says the company will certify any used vehicle that meets certification standards and will sell any older, used vehicle if its quality meets Group 1 standards.

He adds: "We'll never slow down our emphasis on used cars."

(Source: Automotive News, 01/30/12)

Consumers See Less Difference Between Car Brands, Survey Finds

A survey by the Consumer Reports National Research Center revealed that the difference perceived by American consumers between the top car brands and the challengers is shrinking.

The 2012 Car-Brand Perception Survey indicated that Toyota, Ford, Honda, and Chevrolet maintained their top positions but have seen the point gap decrease. Additionally, most of the top brands saw double-digit drops in their total scores.

"Dramatic events in the automotive industry seem to be affecting how consumers view auto brands. Erratic gasoline prices and a struggling economy have pushed consumers to prize low operating costs and good reliability," said Jeff Bartlett, Consumer Reports deputy editor for autos online.

The survey's scores reflect how consumers perceive each brand in seven categories: safety, quality, value, performance, environmentally friendly/green, design/style and technology/innovation. Combining those factors yields results in the total brand-perception score. While the scores reflect a brand's image in consumers' minds, they do not reflect the actual qualities of any brand's vehicles or results from Consumer Reports testing, according to the company.

Toyota continues to dominate overall in brand perception despite slipping by 17 points compared to last year's results. Other top brands, Ford, Honda, and BMW, saw their scores drop more than 20 points. The two leading General Motors brands, Cadillac and Chevrolet, did relatively better with only single-digit decreases.

Respondents indicated the most important factor in car buying continues to be safety (65 percent). The leading brands in overall perception in the survey usually excel in multiple categories. Volvo, however, has maintained a top 10 spot for years by virtue of its safety reputation alone, according to Consumer Reports. This year, however, Volvo experienced a 21 percentage point drop in this factor from last year's 70, to 49 percent. If it continues, this trend could drop Volvo out of the overall top 10 in future years and into the second tier.

Consumer Reports' survey found scores edging downward in the quality factor, with Toyota, Honda and Ford sharing a three-way tie for the top spot and the top brands.

"Brand perception can be influenced by many things, from professional road tests to marketing. Word-of-mouth from friends and neighbors can be a slower moving, though influential contributor as ownership transitions from the initial honeymoon phase to the seven-year itch," Bartlett said.

In the performance category, BMW's score dropped significantly from last year's 27 percent to only 19 percent, according to the survey. This drop leaves the German automaker vulnerable to Ford and Chevrolet.

Toyota again led the environmentally friendly/green category, likely driven by the Prius and other hybrids, as well as some creative marketing, according to Consumer Reports. Smart made a surprise showing this year, debuting in the top five despite having no new products or a sizable advertising budget. Honda again claimed the third position while Ford slipped slightly this year despite introducing the new Fiesta and Focus small cars.

After a year of seemingly endless headlines espousing the electrifying virtues of the Chevrolet Volt and Nissan Leaf, those brands didn't spring ahead in this factor. Chevrolet remained consistent with 12 percentage points while Nissan inched up about two percentage points, rounding to eight percent.

The Consumer Reports National Research Center conducted a random, nationwide telephone survey of 2,045 adults from Dec. 1-5, 2011, and collected survey data from 1,702 adults in households that had at least one car.

(Source: F&I Magazine, 01/26/12)

J.D. Power: What Drives Auto Avoidance

Consumer avoidance is as important to automobile manufacturers and marketers as loyalty. If you can figure out why people are running away, you can figure out how to get them back, right? Yes -- especially if avoidance is being fueled by left-brain parameters like experience of ownership, reviews, ratings, features, price and the like.

Unfortunately, it seems a lot of people are running away for a reason that, because it is so insidious, strikes terror in the hearts of auto marketers everywhere: consumer perception based on "conventional wisdom" about vehicle quality and durability.

More than 40% of new-vehicle buyers who avoided a particular model due to quality or reliability concerns say they based their opinions on common knowledge rather than personal experience, reviews, ratings or recommendations, according to the J.D. Power and Associates 2012 Avoider Study. The study is based on responses from approximately 24,045 owners who registered a new vehicle in May last year.

Among buyers who avoid a particular model because of perceived quality and reliability, 43% say their avoidance was because "the brand's vehicles, in general, are known to have poor quality/reliability." Thirty-eight percent based their avoidance on ratings and reviews, while only 14% said they based their decision on prior ownership of the model.

Jon Osborn, research director at J.D. Power and Associates, argues that if you are an automaker who had a quality problem in the past (that created a generation of naysayers), you can't just let your cars do the talking now.

"For some brands, namely those that have created marked improvements in their quality and reliability in recent years, it's even more vital to tell their improvement story, rather than just waiting for perceptions to change over time," he said, in a statement.

In good news for domestics, the percentage of buyers who avoided import models because of their origin has increased to 14% -- the highest level since the inception of the study in 2003 -- while the percentage of buyers who avoided domestic models due to their origin has declined to 6%, a historical low.

"The decline in avoidance of U.S. models due to their origin reflects a buy-American sentiment that surfaced as the economic recession led to domestic job losses and adversely affected major U.S. institutions such as the Detroit Big Three," said Osborn. "In addition, the quality, dependability and appeal of domestic models have improved during the past several years, as well, and this may also be a cause for declining avoidance."

While perception about quality and reliability is driving avoidance, it is no longer the main driver of purchase. Gas mileage has leapfrogged reliability, the deal and exterior styling, which were the most influential purchase reasons in 2010, the 12-month period covered by the firm's last Avoider study.

While gas mileage and environmental impact certainly are the big drivers for Chevrolet Volt, Nissan Leaf and Toyota Prius, consideration is not uniform across the nameplates. Image is a prominent reason for purchase of Volt, while buyers cite low maintenance costs for the Leaf and reliability for the Prius, per J.D. Power.

Among buyers who avoided the Volt, purchase price was the most-cited reason, while the most prominent avoidance reason for the Leaf and Prius is exterior styling. For the Volt and Leaf, a notable proportion of buyers cited the models' small size as an avoidance reason. For the Prius, performance is a prominent reason for avoidance.

(Source: Marketing Daily, 01/27/12)

Toyota, Honda begin to rebuild

The big sales winners of 2011 will try to hold off a resurgent Japanese giants

An early trend: Last year's three big sales winners -- Chrysler Group, Hyundai-Kia and Volkswagen of America -- continued to drive the market in January.

An early subplot: American Honda and Toyota Motor Sales U.S.A. have begun their long-awaited sales recoveries after a tough 2011. How much lost market share will they win back, and where will it come from?

A surprisingly strong January -- up 11 percent from January 2011 and the best January since 2008 -- seemed to preview that battle, in an optimistic setting. The 913,284 light-vehicle sales translated to a seasonally adjusted rate of 14.2 million, matching the cash-for-clunkers frenzy of August 2009 and well above December's 13.6 million pace.

The January SAAR "is 1 million over the early-month expectations," said Adam Jonas, top auto analyst at Morgan Stanley. "Our 14 million sales forecast is officially under review for positive revision."

"It's significant to see 900,000 in January when much of the country typically is in a deep freeze," said Toyota Division General Manager Bob Carter. "We're bullish with where the industry is going."

Chrysler Group sales surged 44 percent, VW group was up 40 percent and Hyundai-Kia rose 20 percent. And all three were going up against strong January 2011 figures.

But after losing volume last year because of product shortages caused by natural disasters, Toyota group sales rose 8 percent in January, and American Honda climbed 9 percent. And those comparisons were against a relatively normal January 2011, before the Japan earthquake.

Before January, American Honda's sales declined in every month since May. Toyota sales were down or flat in seven of the previous eight months.

Inventory levels still aren't back to normal for either company. But Toyota Motor Sales' market share in January was 0.7 points higher than the 12.9 percent share it achieved for the 2011 calendar year. American Honda was up 0.1 point from its 9.0 percent in 2011.

In 2011, the two Japanese groups lost a combined 3.9 share points. Meanwhile, Chrysler picked up 1.3 points, Hyundai-Kia added 1.1, General Motors gained 0.5 and VW picked up 0.4.

The coming battle

Analysts expect the battle to be in full force by the end of March, when Toyota and Honda expect full inventories.

Still, TrueCar.com analyst Jesse Toprak predicts Toyota and Honda won't regain more than half of the share they lost last year.

"The competition is so much better and customer loyalty is not what it used to be," he said. "The danger is that consumers have found out there are other good cars out there."

Toprak expects most of the share the two Japanese automakers regain to come half from Hyundai-Kia and half from the Detroit 3.

Analyst George Magliano of IHS Automotive expects Toyota and Honda to regain only about a fifth of their lost share during 2012 -- and he says it will come entirely from GM and Chrysler. He sees Hyundai-Kia continuing to grow.

"Toyota is still feeling the effects of the recall and, along with Honda, is hurt by the strong yen," he said.

"GM still has issues on the product side as the Silverado ages. Chrysler has some upside potential, especially later in the year if the Dodge Dart takes off from the start."

Last month Nissan North America sales increased 10 percent, while Ford Motor Co. volume gained 7 percent, both just below the industry average of 11 percent.

The only major player to lose volume in January was GM, down 6 percent. But GM's decline is distorted because it's coming off an incentive-driven surge in January 2010.

The company's January market share fell 3.4 points from a year earlier but was only 1.2 points lower than its full 2011 average.

GM U.S. sales boss Don Johnson expects a gradual improvement in consumer sentiment.

"We're seeing a continuation of the kind of growth and sentiment that we saw start to pick up in the fourth quarter," he said.

Caught by surprise

Jonas of Morgan Stanley wasn't the only analyst to be caught by surprise by the January surge.

TrueCar.com, Wells Fargo Securities and Kelley Blue Book also are rethinking 2012 sales forecasts as a result.

Kelley Blue Book analyst Alec Gutierrez did not officially revise his 13.3 million sales forecast for the full year. But he said "sales are on pace to surpass" that level.

In December, Jonas was the highest and Gutierrez toward the low end of 11 analysts Automotive News asked to forecast 2012 U.S. auto sales. The forecasts ranged from 13 million to 14 million and averaged 13.6 million, which would be up 6 percent from 2011's 12.8 million sales.

Jonas and Gutierrez cited as a positive factor a large number of new and redesigned vehicles hitting the market this year, starting in the second quarter.

For example, Carter said Toyota will launch 19 new or updated models this year as it tries to regain lost market share.

"About 40 percent of the vehicles we sell this year will be new or significantly updated models, compared to just 7 percent last year," he said.

Consumers are becoming more interested in new vehicles and advanced technology and less concerned about the economy, Toprak said.

"It's starting to feel like the good old days, when people got worked up about new products," he said.

Several executives and analysts cautioned that January is often a volatile month, but optimism about 2012 is growing because of the month's strong sales.

"It's too soon to declare victory," Toprak said. "But there's a very good chance we can get to that magic 14 million level this year if this pace continues."

Shifting shares
For the first time in months, market share for Toyota Motor Sales and American Honda moved upward in January.
	Jan. 2012	Jan-Dec.2011
General Motors	18.40%	19.60%
Ford Motor	14.9	16.8
Toyota Motor Sales	13.6	12.9
Chrysler Group	11.1	10.7
American Honda	9.1	9
Nissan North America	8.7	8.2
Hyundai-Kia Automotive	8.6	8.9
Volkswagen of America	4	3.5
Source: Automotive News Data Center, automakers

Jesse Snyder - Automotive News