Surprising Trends in Auto Retail

You spend a lot. And you may be willing to forego the dealer “experience”

By Gary S. Vasilash

According to the most-recent Cox Automotive/Moody’s Analytics Vehicle Affordability Index, the number of median weeks of income to buy a new vehicle is 37.

37 weeks to buy a new vehicle.

That’s the greatest number of weeks since they started measuring it back in 2012.

The firms found a trifecta of things contributing to this situation:

  • Vehicle prices increased
  • OEMs and dealers are putting less cash on the hood
  • Median incomes fell

It would have been worse, apparently. Financing rates decreased, so if that didn’t happen, there would have been higher monthly payments.

Gulp.

In May, the most recent month with figures, the average transaction price that people were paying for a new vehicle was $41,263 according to Kelley Blue Book.

Now admittedly that doesn’t mean that everyone pays that much. It wraps in figures for OEMs from Mitsubishi to Mercedes, from Chevy to Porsche. Cars, trucks, SUVs.

But still, a lot of money.

A lot of weeks to earn that money.

All that said, J.D. Power has announced that predicated on its analysis of the usage of OEM websites, 49% of vehicle shoppers are willing to purchase a new vehicle online.

This is an increase of 11% from 18 months ago—about the time that the effects of the pandemic kicked in in the U.S. market.

So what’s behind this:

  • Is it that people are more comfortable shopping for things online, as many of them have done during the past 18 months for everything from groceries to appliances?
  • Are more people simply questioning the visit to a dealer as being a necessity?
  • Is this a case where people go to a dealership, take the test drive, and then go home and search for a better deal?

Whatever the case, it is clear that there is a shift in how vehicles are going to be bought. And it is also clear that there is a shift in what people are willing to pay for vehicles.

Consider this: If you bought a new vehicle the first week of January this year, you wouldn’t pay it off until the week of September 10.

That Old Vehicle Is Now. . .Older

Yes, another consequence of COVID

By Gary S. Vasilash

During 2020 probably one of the last things on anyone’s mind was buying a new car or truck unless, of course, they had a feeling of being locked in and locked down so they wanted to get out there and do something with the money that they were not spending on cruises or long weekends in Las Vegas.

Light vehicle sales went down.

And according to research from IHS Markit, a consequence of that is that the age of vehicles in people’s driveways went up.

Up by almost two months.

According to the research firm the average age of a light vehicle is 12.1 years old.

(Image: IHS Markit)

Another thing happened, IHS found. The number of vehicles that were taken out of active service went up. Known as “scrappage,” some 15+ million vehicles—or 5.6% of all vehicles in operation—were, well, scrapped.

One would think that this would have made the average age go down, but the reduced overall sales and a drop in vehicle miles traveled caused, in the words of Todd Campau, associate director of Aftermarket Solutions at IHS Markit, “a radical departure from the norm.”

On the subject of vehicle miles traveled, they were down over 13% in 2020.

One result of that is that people may have allowed their registrations to expire because they weren’t going anywhere.

And if they kept it, they may be in for a happier 2021.

Campau: “The microchip shortage and subsequent inventory levels for new vehicles have created a situation in which used vehicle values have gotten extremely high, so a vehicle owner who may have kept a vehicle in the garage that they were not using in 2020, now instead may take advantage of the opportunity to either reduce the number of vehicles in their garage, or trade up to something newer while the demand and value is extremely high on their used vehicle.”

Of course, this means being able to find a vehicle that they may actually want if said vehicle isn’t a high-end SUV or loaded pickup, which is what OEMs are focusing on building as they meter out their silicon to vehicles that provide them with the highest margins.

IHS anticipates that the aging fleet will, however, get younger, as more people get in the market in 2021.

Not a fountain of youth. But a move in the right direction.

Not As Big 3 for SUVs

Toyota leads in SUV sales in the U.S.–by a non-trivial amount

By Gary S. Vasilash

Although it might seem that when it comes to trucks and SUVs, “trucky” things, that Ford, General Motors and the company formerly known as FCA which was formerly known as Chrysler, would be dominant.

When it comes to pickups, yes. The numbers of F-150s, Silverados and Rams is truly extraordinary. Who knew that so many people were in need of boxes on the back of their vehicles? (Yes, people who actually do work with their trucks, do, but somehow that guy down the street who uses the bed to carry mulch once a year. . . .)

According to analysis firm Inovev, SUVs represented 53.5% of the U.S. market during the first quarter.

Toyota RAV4: best selling SUV in the U.S. (Image: Toyota)

And of them, most carried the Toyota “T.”

Inovev notes that Toyota has outsold both Chevy and Ford by about 50,000 units, with Toyota sales being just shy of 250,000 units and the other two slightly below 200,000 for Q1.

Inovev points out that Toyota also leads the Big Three in the sedan category (Camry, Corolla).

So if there are three big categories–trucks, SUVs and cars–the Big Three is now only dominant in one.

About the 2022 Lexus ES

Yes, sedans matter. Done right.

By Gary S. Vasilash

Lexus has revealed the major midcycle update of the seventh generation ES, which appeared in 2018. The ES is a sedan. The ES is one of the fundamental products of the brand that we now know as Lexus. In 1989 at the North American International Auto Show in Detroit Lexus was introduced to the world with two models: the LS 400 sedan and the ES 250. While many associate Lexus with the wildly popular RX crossover, it wasn’t introduced until 1989.

Without the ES, arguably, we wouldn’t have the Lexus that we now know: Let’s face it, while the top-of-the-line LS is notable, its sales potential is limited. (That is: the starting MSRP for an LS is $76,000, while the starting price for an ES is $40,000. The difference is not trivial.)

The 2022 Lexus ES. Yes, people still like to drive cars. (Image: Lexus)

Lexus has seven cars in its lineup: IS, RC, ES, GS LS, LC and LFA. In 2020 there were 68,205 Lexus cars delivered. Of that number, 43,292 were ES models. Second to it is the IS, at 13,600.

Of course, the brand that made luxury crossovers a thing has five models in the SUV category. In 2020 it sold 206,836. Of that number, 101,059 were RX models. Second to it is the NX, at 55,784.

While it is clear that the crossover is certainly bringing in more buyers, note how important the ES is to the overall car sales: 63% of the total. The RX represents about 49% of the crossover total.

So for 2022 the brand has made some modifications, such as making its Lexus Safety System+ 2.5 as standard equipment (among its elements: Pre-Collision System (PCS) that uses enhanced sensors; it includes Frontal Collision Warning (FCW), Automatic Emergency Braking (AEB), Pedestrian Detection and Bicyclist Detection, and Intersection Turning Assist (under certain conditions it will recognize an oncoming vehicle when performing a left-hand turn, or a pedestrian when performing left and right-hand turns; it activates PCS if needed)).

They’ve modified the instrument panel design, doing such things as moving the center screens (standard 8-inch and optional 12.3-inch) forward 4.3 inches for easier accessibility.

On the outside there are new grille patterns. There are new wheels.

They’ve modified the ride and handling characteristics thanks to things like the use of a new rear suspension member brace. They’ve updated the braking system. . .and even enlarged the size of the brake pedal.

They’re even offering an FSPORT accessory and handling package for the hybrid version of the ES.

Lexus is putting a lot into the ES.

Look at those numbers for last year.

And consider this: in 2020 there wasn’t a single Cadillac model—not a car, not a crossover, that had sales of 43,292. The closest is the XT5 crossover, at 35,223.

Yes, the right sedan can matter.

Remember When Nissan Was Noticeable?

Not all that long ago the Japanese Big Three were Toyota, Honda and Nissan. Nowadays the last-named seems to have lost its momentum in the market while the other two keep driving forward. Why?

By Gary S. Vasilash

“Remember when driving was fun?” actress Brie Larson opens a new Nissan commercial rhetorically asking before she blitzes her way through the array of new vehicles that Nissan has launched, or is about to.

At one point she’s being the wheel of the Z Proto and acknowledges that there are three pedals down there. Enthusiasts will get it. Others may be confused.

Will Brie boost Nissan? (Image: Nissan)

Nissan is rolling out 10 new or improved products over 20 months, so its showrooms will be fresh with sheet metal.

For those who are interested in one-pedal driving, Larson drives in a Nissan Ariya, the new EV that is anticipated to launch this year. (EV drivers will get it. Others may be confused.)

Although Nissan showed improvement in the first quarter, with its sales up 14.8% from Q1 2020, it really isn’t a good reflection of what it has on offer right now.

Consider: the Nissan Division had sales of 266,482 units. That’s Versa, Sentra, Altima, Maxima, LEAF, 370Z, GT-R, Kicks, Frontier, Titan, Pathfinder, Armada, Rogue, Murano, NV, and NV200.

Ford sold 277,233 trucks. F-Series, Ranger, E-Series, Transit, Transit Connect, and Heavy Trucks. 203,797 of those were F-Series.

What accounts for Nissan’s lack of traction in the market is certainly mystifying.

The question is whether Captain Marvel will save the day.

The Auto Market Right Now

Yes, it is hot, as the pent-up demand looks for a release valve. But. . .

“The quarter ended strong, setting the market up for an incredible spring from a demand perspective, with $1,400 stimulus payments starting to be issued, tax refund season beginning, rising consumer sentiment because of the vaccination progress, and, literally, it is spring which normally causes people to think more about buying vehicles. All those things are coming together right now, and the industry would likely be setting all-time sales records if it were not for tight supplies and elevated prices.”—Jonathan Smoke, chief economist, Cox Automotive

It’s that second thing that can be troubling.

According to Experian, in 2020 U.S. consumer debt was $14.88 trillion, which is a 6% increase compared to 2019 and the highest growth rate in more than a decade.

And of that, auto loan debt was at an all-time high of $1.35 trillion, a 3.8% increase over 2019.

Gen X has the largest auto loan debt balance, at $22,307, followed by the Boomers, at $19,306, which is just ahead of the Millennials, at $19,011.

(Seems like Gen X is big on debt, as it leads all generations in all categories, including credit card debt, student loans and mortgages.)

Q1 Sales Surprises

Yes, customers are back. But some of what they’re buying is surprising.

By Gary S. Vasilash

Although it was April Fool’s Day when the first quarter 2021 numbers for U.S. sales were announced by OEMs, the smiles were real in offices across the land as the SAAR (seasonally adjusted annual rate) rose to approximately 16.5-million units, or about a 12% sales increase compared to Q1 2020, which, of course, contained the first month of the pandemic in America.

2021 Toyota Prius Prime. There was a 70.6% sales increase for the model in Q1 2021. Who saw that coming? (Image: Toyota)

This wasn’t supposed to happen

Plenty of people who seem to have a particular affection for liking the use of fossil fuel and has therefore been gloating over the fact that Toyota Prius sales have been dropping must have gotten a surprise. Despite that fact gasoline prices have been low for the past several months and still under $3.00 per gallon ($2.85 in the U.S. as of now, according to the Energy Information Agency), Prius sales rose 22.4% in Q1, to 14,050 units. (For a not apples-to-apples comparison: Chevy sold 7,089 Camaros during Q1.)

What is more striking is that all Toyota hybrids had a combined 152% increase, to 125,318 units. (“Thank you, RAV4,” they must be saying down in Plano.)

***

The Big Three?

Remember when that was General Motors, Ford and Chrysler?

GM is still big. Overall sales of 642,250 vehicles.

The other Two, however:

Ford, including Lincoln, had sales of 521,334.

FCA, including Chrysler, Jeep, Dodge, Fiat, Alfa Romeo, had sales of 469,651.

Toyota, including Lexus, 603,066. That’s a lot more than either Ford or FCA.

***

This wasn’t supposed to happen, 2

Everyone knows that (1) sedans are nearly dead in the market and (2) economical vehicles are so 2010.

Nissan, including Infiniti, had a good first quarter, with overall sales of 285,553 vehicles, which is a 10.8% increase over Q1 2020.

But there are two absolute standout vehicles in the Nissan lineup:

  • Versa: 22,394 vehicles, or an 83.9% increase
  • Sentra: 37,238 vehicles, or a 55.9% increase

Admittedly, crossovers like the Kicks (24,421 units) and the Rogue (86,720) were big contributors, the fact that the Versa and the Sentra did so well ought to make some analysts reconsider that whole “Cars are on life support” position.

***

This puts March 21 vs. March 20 in perspective

In March 2020 Hyundai delivered 35,118 vehicles.

In March 2021 Hyundai delivered 75,403 vehicles.

That is a 115% increase.

Still: Wear a mask.

Cox Automotive Looks Through a Crystal Ball

Nothing like a bit of prediction. . .

By Gary S. Vasilash

Who doesn’t like predictions? Especially after the year we’ve all just been through.

So here are six from Kayla Reynolds, Industry Intelligence Analyst at Cox Automotive, regarding the vehicle market in the U.S.

  1. Things won’t return to “normal” in 2021, even with the vaccines rolling out. Seems that social distancing and mask-wearing are going to become the way of the life. Comment: Well, at least in some geographies and demographics. Depending on where you live, you might want to bring some Clorox wipes should you be taking a test drive anytime soon.
  2. The auto industry will emerge stronger from the pandemic. Reynolds said that dealers anticipate improved profits on lower volumes. Comment: Odds are you’re not going to be seeing as many giant inflatable animals in front of dealerships because there is evidently lots of demand.
  3. Inventory will remain tight through the year. New and used vehicles are both in shorter supply—by a lot. Comment: Unless it is really something no one wants, deals are going to be few and far in between. Better get ready to spend that stimulus check.
  4. This year will be a tipping point for digital retailing. Consumers discovered that they could spend lots of time on line in preparing to buy, which meant less time being in a showroom, which was a good thing with a raging pandemic. Comment: No, Amazon Prime isn’t going to deliver your new set of wheels this year.
  5. New competition will slow Tesla’s growth. Reynolds said, “We’ve said this before, but we mean it this time.” Comment: The fact that Tesla is the only company to get its own prediction says a lot about that brand. Yes, at some point Tesla sales are likely to suffer. Some point.
  6. Vehicle ownership increases as ride-sharing and ride-hailing decrease. This is predicated on the first prediction, a consequence of the pandemic. Comment: According to the TSA, there were 1,574,228 air travelers processed on March 28, 2021. On February 28, 2021, there were 1,190,682 passengers processed.  That is a 25% increase in a month.  How long until people are fine climbing into Lyfts and Ubers? Probably a lot sooner than the Cox prognosticators think.

How Are Sales Doing?

Were it not for things like blizzards, probably even better

Although it seems that new vehicle sales are an unstoppable force now that more people have become bored with COVID been vaccinated, according to Cox Automotive, in February there were 2.82-million cars, trucks and utilities on dealer lots—and in January that number was 2.79-million.

Turns out that things like winter storms not only knock out power grids but keep people from showrooms.

While 2.82-million may seem like a lot, back in normal times (remember those), the number was bigger: a year ago it was 3.41-million.

That’s for new. What about used?

Well, that part of the business is evidently better. There was an unsold supply of 2.59-million units on lots at the end of February. The number was 2.66-million in January, or a 70-million-unit difference.

And the difference between now and last year is notable: 12%. There were 2.97-million used vehicles ready to go in February 2020.

Still, whether it is one of the 2.82-million or 2.59-million, there is probably a vehicle that could have your name on it.–gsv

And How Do Others Compete With That?

Tesla signifies more than an electric vehicle. . .

“Many consumers perceive Tesla as a leading-edge, high tech, environmentally progressive brand driven by a charismatic leader who not only builds cars and crossovers, but also sends rockets into space and is a global industrial visionary. That combination is hard to beat and has gotten the attention of the entire global auto industry.”  –Tom Libby, associate director, automotive industry analysis, IHS Markit 

Here’s something to consider: there are about 880 Mercedes dealerships in the U.S.—and just some 130 Tesla outlets (Image: IHS Markit)