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.

The Big Spend

Seems like vehicle buyers are buying—costs be damned

By Gary S. Vasilash

“Importantly, consumer spending will still advance despite higher prices due to pent-up demand and record savings balances.” That’s Richard Curtin, chief economist for the Surveys of Consumers, University of Michigan.

In the survey for May it was discovered that consumer confidence fell compared to the data for April. A concern is with inflation.

According to the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index was up by 4.2% for the 12-month period ending in the cruelest month. That was the highest rise since September 2008, when it hit 4.9%.

What was a big contributing factor to both the fall in consumer confidence and the increase in consumer prices? Vehicle prices.

In the case of used cars and trucks, the BLS measured a 10% increase in prices—the largest one-month increase since they started measuring back in 1953.

But it seems that shoppers aren’t all that concerned.

According to Cox Automotive:

“Four out of ten consumers are willing to pay above the manufacturer’s suggested retail price (MSRP), and those willing to pay over MSRP are willing to accept a 12% premium.”

Cox calculates that based on the average MSRP for new vehicles in April being $41,950, according to Kelley Blue Book, “many consumers are willing to pay $5,000 over sticker price.”

Somehow politicians are blamed for inflation.

Seems like consumers might have more than a cameo role in this scenario.

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.)

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