ORLANDO – While the aftermarket looks favorably on high mileage vehicles for more opportunities for service, the dealership market also is taking a closer, more eager look at this area of the market at a time when profits are made in the service bays not the lots.
Paul Taylor, chief economist with the National Automobile Dealers Association (NADA), says the growing number of vehicles on the road with high numbers on the odometer is giving the new car market a boost.
“We believe in this economy, the high mileage on a number of cars out there will help motivate sales,” he says, speaking at the NADA Convention this weekend in Orlando.
New car sales saw a recent historical low in 2009, recording 10.4 million units sold for the year. That was down from 13.2 million units in 2008 and 16.1 million for 2007. In fact, the next lowest point of sale is 15.1 units sold in both 1996 and 1997. He believes that in 2010, new car sales could hit 11.9 million units.
Taylor says the 2009 sales number was that high partially because of 0 percent financing options – which also boosted sales to 17.1 million in 2001 after the Sept. 11 attacks – and Cash for Clunkers.
“Cash for Clunkers did exactly what a stimulus program was supposed to do. It caused additional sales, additional production over the next five months,” Taylor explains. “When we look at the data from people who made the clunker transition, we find that we convert confirmed used car buyers into new car buyers.”
That also means some of those used car buyers could have been transformed into dealership service repair center customers. New car dealers are going through four years of profitability losses, the first since 1995, and three years from 1990-92, according to NADA industry analysis data.
Parts and service have, since 1988, provided more than 40 percent of profitable dealership’s profits. However, for the last five years, it’s more nearly 60 percent or higher, including nearly 100 percent of profits in 2008. That’s because in 2008, Taylor explains, gas prices were high in the summer and lower in the fall, and OEMs were slow to respond in getting hybrid models on the lots for drivers to purchase.
And now, stabilizing gas prices mean people are not as willing to shell out extra money for a hybrid than a fuel-efficient model. Hybrid sales experienced the second year of decline in 2009.
“Has the government pushed the mix of production capacity too far to the cars that the government wants you to drive, and are we too far from the cars customers typically want to buy?” Taylor questions. “The question is that as we move toward more fuel efficient vehicles at the behest of the government, how much are Americans willing to pay, especially when gas prices are (stable)? We’re still running that experiment.”
But he is quick to add that hybrids will be a successful part of the U.S. market, but it might take a little longer than first thought with a dramatic rise in sales in 2007.
With the change in some of the vehicles drivers are motoring, some makes and models you see now could be changing. Even though fuel prices have evened out during the last 18 months, small and mid-size vehicle sales rose, especially mid-size vehicles, which saw a 22 percent jump in sales in January 2010 over January 2009, according to data from Ward’s Automotive shared at NADA’s convention.
Crossover utility vehicles (CUVs) are another segment to watch, as CUVs saw positive growth in January 2010 over 2009. NADA officials also believe that this category has at least 10 more years of growth.
You also might be seeing fewer GM and Chrysler makes, as the OEMs have lost market share given the cutbacks in the last year, but more Hyundai and Ford makes, as they led the vehicle market share in 2009 over 2008.
“I can’t let this pass though without saying that if (Volkswagen) is going to take over (Toyota), and even with all the events going on in the headlines, they’ve got plenty of sales growth to do,” Taylor adds. “There’s going to be lots of competition.”
Overall, what moves from the lots in 2010 and into service centers, including independent shops, will depend on the changing economy, government programs and the real estate market. There is one thing for certain, though, Taylor says.
“It’s going to be a year of where consumer choice is determines what sells.”
