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.

Sales Numbers Could Make One Swoon In June

J.D. Power and LMC Automotive see solid figures for June ’21 sales

By Gary S. Vasilash

J.D. Power and LMC Automotive have come out with their prediction for how June 2021 sales will come in, and the prediction is that it will be a 12.4% increase over June 2020—which isn’t all that surprising, given that in June 2020 we were still in the midst of the pandemic—and even a smidge, as in 0.3%, better than June 2019 (taking into account available selling days).

However, looking at the second quarter of 2021 in its entirety, things are rather robust, as in a 44.2% increase over Q2 2020 and a 10.7% increase over Q2 2019.

But there are some other figures that need to be taken into account.

One of those numbers is $38,088. That’s the average price of a new vehicle, which is a first half record according to the two organizations. It is a 10.1% (or $3,497) rise compared to the same period in 2019 and a 14.1% (or $4,699) increase over the number in 2019.

The average transaction price—as in what people actually pay for a vehicle from a dealer—is expected to be $40,206, a record high.

The organizations see retailer profits rise from $1,310 in the first half of 2020 and $1,457 in the first half of 2019 to $2,844.

Explains Thomas King, president of the data and analytics division at J.D. Power, “Consumers are buying more expensive vehicles despite smaller discounts, which is dramatically increasing the profitability of those sales for both manufacturers and retailers.”

Although there is evident agitation on behalf of some of an economic bent regarding the rise in inflation, recognize that here are consumers who are buying big, which means that OEMs are going to make more expensive vehicles because they’re selling, which means that there will be a continued rise. . .

Until there isn’t.

2020 Sales Expectations: Not Bad. But Not Good.

12,386,000. That’s the number of new vehicles that J.D. Power and LMC Automotive estimate will be sold in the U.S. in 2020.

All in, this is a decline of 9.5% compared with 2019 sales.

Given COVID-19, surprisingly good.

What’s more, the average transaction price—that is, the price that people actually pay, taking cash back, incentives and other means to persuade people to buy—is expected to be $38,077, up 9% from 2019.

According to the researchers, because of the higher transaction prices, the vehicle manufacturers are not going to take quite as big a hit as the 9.5% decline in sales might lead one to expect: It is estimated that the total value of new vehicles purchased will be off just 4%.

December sales provide a bit of a boost because this is when luxury sales tend to make an upswing.

And for this particular December, J.D. Power and LMC calculate that trucks and SUVs—which generally have a higher sticker price than sedans—will account for 79% of all retail sales, up 4% from December 2019.

But here’s a question: is this a sustainable situation given the number of people in the U.S. who are currently unemployed?

According to the most recent figures from the Bureau of Labor Statistics:

“Among the unemployed, the number of persons on temporary layoff decreased by 441,000 in November to 2.8 million. This measure is down considerably from the high of 18.1 million in April”—good—“but is 2.0 million higher than its February level.” Not good.

“The number of permanent job losers, at 3.7 million, was about unchanged in November but is 2.5 million higher than in February.” Think of this: those people aren’t getting their jobs back.

“In November, the number of persons who usually work full time rose by 752,000 to 124.3 million”—good—“while the number of persons who usually work part time decreased by 779,000 to 25.4 million.” Not good.

Given the number of unemployed people, is it not likely that there were some people who, after the lockdowns were lifted, went out and bought a new pickup because they figured that they might as well?

While sales in 2021 will undoubtedly be better than 2020 (yes, a not particularly high bar), one wonders: How many people are going to find that their vehicle payments and their income just aren’t getting along very well?