J.D. Power Expert Outlines Key Forces behind U.S. Sales Growth

Deirdre Borrego presents auto industry outlook at J.D. Power Automotive Marketing Roundtable “The U.S. auto industry has enjoyed remarkable revenue growth this year,” Deirdre Borrego, J.D. Power vice president of client services, said during a presentation at the October J.D. Power Automotive Marketing Roundtable (AMR) in Las Vegas, NV. “From a consumer standpoint,” she said, “there are specific market forces that have kept sales strong and transaction prices high.” Borrego pointed to four key drivers:

• Long-term loans are a key enabler. Nearly one in three 2013 sales to date was facilitated by a loan of 72 months or longer. Extended terms, combined with. . .

• . . . Low interest rates have allowed consumers to buy a richer mix of vehicles while keeping their monthly payment within their household budget.

• Strong residuals enable manufacturers to offer attractive leases to consumers, again with desirable monthly payments.

• Tight used-vehicle supply is another key factor. The average price of a used vehicle increased by roughly $3,000 since 2008 to reach $18,800 so far this year. This drives stronger in-equity positions for existing owners, improving purchasing power or removing barriers to entry. Continue reading ›

J.D. Power’s King Discusses U.S. Auto Market Shifts at Joint Conference

Thomas King Speaking at S&P ConferenceJ.D. Power’s Thomas King, senior director, Power Information Network® (PIN), recently shared insights on changes in new-vehicle demand in the U.S. market at the Standard & Poor’s/J.D. Power Auto Industry Hot Topics Conference in New York.

Analysts from S&P, J.D. Power, and strategic partner LMC Automotive, presented their views and analysis of the current and future state of the U.S. and global auto industry to an audience of more than 160 Wall Street analysts and reporters. Continue reading ›

Dealers Outline Financial Hurdles and Challenges of New Technology

NY Auto Forum Dealer Paneli-CQFWkSW-SThree auto retailer owner/operators discussed opportunities and challenges that lie ahead for dealerships, during a one-day New York Automotive Forum jointly sponsored by J.D. Power and Associates and the National Automobile Dealers Association (NADA) that was held before the New York International Auto Show (March 29 – April 7). The following post features dealer views on the financial side of the business for dealers in the current economic environment and discusses some challenges retailers face such as selling and explaining technology and sophisticated electronics in new vehicles.

Moderator: Glenn Mercer, Independent Consultant

Panelists:

Earl Hesterberg, President and Chief Executive Officer, Group 1 Automotive, Houston, TX; the fourth-largest public dealership group in the U.S., U.K. and Brazil (142 dealerships)

Jon Lancaster, Retired Toyota/Lexus Dealer, Madison, WI

Wesley (Wes) L. Lutz, Owner, Extreme Chrysler/Dodge/Jeep, Inc., Jackson, MI

Will the Financial Side of the Auto Business Become More of a Challenge?

Glenn: Right now, interest rates are low. At some point they will go up. Do you have a feel for the impact on the dealer body as to how many people might have over-leveraged in terms of facility upgrades or do you think it will be a stressful period when it goes to whatever normal interest rates are?

Earl: The business model of auto retailing is a high leveraged or debt-laden business because you’re financing the inventory. And you are financing a facility through a mortgage or a lease. Sure, there are some dealers who own their land outright. But we’re getting lulled to sleep by these interest rates, which are barely positive. Historically, we paid 6% and 7% for inventory. It will come again. Dealer profitability is somewhat overstated. Right now our flooring rates are low, our facility rates are low, and anybody who is borrowing working capital is also borrowing it at an attractive rate. Everyone knows that can’t go on forever. That will put huge profit pressure on the system some day if rates jump. Continue reading ›

US Market: Trade-in Percentages Up, Lower APRs Remain Popular

Grace Hamulic

In October 2011, more than one-half (53.6%) of all new-vehicle deals included a trade-in, up from 49.9% of deals in October 2010, according to Power Information Network® (PIN) retail transaction data from J.D. Power and Associates. It’s noteworthy that during the past year, PIN data indicates that the percentage of trades with negative equity (amount owed on trade-in that is greater than the vehicle’s value) continued to drop. About 22.5% of trade-ins were upside down in October, which was down from 23.2% in the same month a year ago. The new-vehicle sales outcome in October was brighter this year than a year ago.

A few more highlights gleaned from PIN retail transaction data in October this year vs. the same month in 2010 are summarized:

• It’s likely that more buyers and lessees replaced their current older vehicles in October 2011, since the average age of a trade-in from all nameplates rose to 6.5 years from an average trade-in vehicle age of 6.4 years in October 2010. The trade-in vehicle age does not appear to have changed much.

• Interestingly, the age of luxury vehicle trades in October 2011 was younger than the industry overall—averaging 5.3 years old vs. 6.5 for the industry. Continue reading ›

Lower Interest Rates Prevail, Trade-Ins on the Rise

Grace Hamulic

A majority of new-vehicle buyers or lessees (77.5%) received APRs on their purchase or lease deals below 5% in July this year, much higher than in the same month a year ago (71%). In addition, the average APRs were 4.30% for financed transactions and 2.68% for lease deals, slightly lower than the average 4.48% (finance) and 3.02% (lease) APRs in July 2010, based on our Power Information Network® (PIN) retail transaction data. In the first two weeks of August, 77.6% of buyers and lessees received APRs that still averaged below year-ago rates (4.35% for financed deals and 2.70% for lease transactions).

Additionally, more than one-half of all transactions in July this year included a trade-in (52.6%), which was up 4.4 percentage points from the same month last year, when only 48.2% of all deals included a trade. More than half of all deals in the first part of August this year have included a trade-in (51.6%).

Which models are most (or least) likely to have a trade- in? In July 2011, the model with the lowest trade-in percentage (only 12.2%) was the eco-friendly Nissan Leaf battery-electric vehicle (BEV), which suggests that buyers are likely purchasing it as a second (or even third) vehicle. On the flip side, another Nissan model and a Chevrolet model tie for the highest rate of trade-ins. Among models purchased or leased in July 2011, 76.1% of Nissan Titan and Chevrolet Avalanche deals included a trade-in. Continue reading ›