Summary
The joke is that the only place lonlier than a GM dealers showroom is the Chrysler /Dodge Dealer across the street. What does that mean? It means that retailers sporting a domestic brand will need to retrench and regroup ...start stocking up on used imports which are still selling well, and pray for the summer incentives season to start early ala GM's latest announcement for their 0% money for 72 months and June giveaway rebate incentives. The alternative of course is not good and the market seems geared to do some of the dirty work for automakers like Chrysler who were worried about the expense and logistics of reducing the number of it's franchised dealers. Does that mean that cars aren't selling at all? Not at all. Mazda's continue to sell stongly as well as the Big Two Honda and Toyota. Here is the rest of the story on some of the sales numbers that were posted for May and the best guess for the balance of the summer selling season for the rest of the group.
Analysis
Maybe the war in Iraq should move to a Chrysler/ Dodge dealership where I am told if someone were to set off a bomb anytime day or night 24/7 no one would get hurt. However if you were slow in figuring out that cars getting 8-12 mpg are not as much fun to fill up at the gas station as the 40-60 mpg hybrids then in the Northwest expect to wait on a waiting list for 2-3 months to take delivery of your new Toyota Prius.
The May sales numbers for US and foreign automakers didn't hold too many surprises for clear thinking consumers who are able to do the math on the high profit, low low fuel economy SUV's and trucks. Everyone has been talking about some of the anomalies that did appear in that report. Some clarifications are necessary so that consumers don't magically start thinking that the huge increase in Sales of the Toyota Sequoias and Toyota Matrix's must have some sort of hidden meaning. What do I mean? Toyota reported that sales of their gas guzzling Sequoia's were almost 30% in May over the same month last year and the Matrix numbers were up a whopping 56% over 5/2007. The reason for this is not a case of consumer insanity (in the case of the Sequoia) or consumer euphoria (in the case of the Matrix) quite simply in 2007 as they were going through the retooling and major facelift process of both of these models, there simply weren't any Sequoias or Matrix's to sell other than the odd ball onesey twosey's left in dealer inventories. Domestic retailers, who face an immediate need to find some way to find something that consumers are willing and wanting to buy, have altered the mix on the used car side of their offerings geared more towards the 'in demand' used imports, further driving up auction prices and premiums to book values being paid at the auctions for those highly sought after economical, and more reliable vehicles. It's nice to have something that generates floor traffic and makes your phone ring, but with the premium being paid for these vehicles combined with the contraction of the advances lenders are currently willing to approve, expect to see a dramatic lowering of the PVR's for the normally very lucrative used car portion of the dealers monthly statement. The Big Two dealers still have a huge competitive edge in the used Honda's and Toyota's, because they offer one thing that domestic franchises can't; The highly desirable and benefit rich "used car certification". Toyota and Honda both predicted the marketing valueof having strong certified used car programs, and did a good job of getting their dealers on board with the program years ago. With the added value of the rigorous certification process the consumer gets an intensively inspected vehicle, along with an additional powertrain warranty and factory supported subvented interest rate financing ... something you can't get when you buy the used Toyota Camry at one of the bazillion Lithia Dodge stores down the street. Which publicly traded dealer groups are strategically positioned to best weather these storms? Asbury Automotive (ABG) has more import franchises than domestic and while their numbers have dropped and probably will continue to drop over the next few quarters expect them to be least impacted by this new era of automotive retailing, further their finance and insurance departments keep coming in with staggering numbers (over $1,000.00 PVR) which tells me that they have also been investing in training their people to extract every possible profit dollar from every single customer they see. AutoMax is another publicly traded group run by some very smart car people which you can expect were adjusting their inventories to meet the evolving demands of todays consumers last year. Who will likely take it on the chin the worst? Lithia has the most exposure, as they are heavily weighted towards the Big 3 automakers (especially Chrysler/Dodge) but they are also lead by some of the industries brightest retailers and their announcement recently to shed some of the weak sisters in their group (read some of their Dodge and Chrysler stores) and focus more on pre-owned vehicles leads me to think that while it won't be pretty they will make it through while the automakers retool their line ups to better serve the consumers evolving needs. What does all of this emphasis on the pre-owned market mean for the Big 3 ? It isn't pretty and it isn't good. Going into the first quarter of 2008, industry forecasts were thinking 16 million units was a doable number, and as the March numbers rolled in I said:
"Based upon the view from my vantage point I would be surprised to see us break through the 15 million unit mark, nationally for 2008."
and
"I would be a surprised to see sales of even 15.5 million units. Where I have my money on the wheel of fortune (new car edition) is on the under 15 million units square and I am all in!"
I am optimistically revising that prediction downward into the 13.0-13.5 range ...let the games begin!
