by Jon LeSage, editor, Used Car Market Reports
For franchised dealers and their suppliers, NADA 2015 at the Moscone Center in San Francisco was a success. It’s an excellent place to speak with industry colleagues and get a reading on what’s really happening in new and used car sales. Here are a few thoughts from my notebook:
1. The industry seems to be healthy, with attendance at 22,000 to 24,000 people – up from last year and about 550 exhibitors in the three separate Moscone Center halls. As for car sales, NADA’s chief economist Steven Szakaly forecasted US new vehicle sales will go up from 16.5 million sold in 2014 to 16.9 million sold this year. Economic growth is behind it with an improving housing market and job expansion leading to a surge in demand; low gas prices are a factor and that should tip the scale to more demand for pickup trucks and SUVs.
2. Jonathan Banks, executive analyst at NADA Used Car Guide, said that used vehicle prices are expected to fall 2% to 2.5% for the year, while growing off-lease supply will drive late-model vehicle volume up 8%. Higher used vehicle supply, flat new vehicle prices with higher incentive rates, and less favorable credit conditions are some of the factors that will pressure the vehicle market for the year, he said. Overall, the new and used car markets should be stable this year, according to Manheim’s 2015 Used Car Market Report that was released Friday at the NADA Convention. “While last year was a banner year for growth and stability in the used-vehicle market, we anticipate that we’ll see the sixth consecutive year of increased new vehicle sales in 2015,” Tom Webb, chief economist at Cox Automotive, said.
3. While TrueCar has been controversial for several dealers in the US, the company’s presence was strong at the convention. John Krafcik, president of TrueCar, told me that 40 of the top 50 dealer groups in the US now participate in TrueCar. TrueCar estimates that dealer are spending $616 per car sales transaction on marketing — from buying leads to advertising and other costs. He said that in TrueCar, they’re spending and average of $299 for new car sales and $399 for used cars. Used car sales cost dealers $100 more because the sales transactions are more profitable than new, and the market is more competitive and needs that extra marketing spend. TrueCar is working with its partner company ALG to provide transparent pricing to help dealers “set their top line and protect residual values,” Krafcik said. TrueCar estimates revenue of $1.2 trillion last year in US new and used vehicle transaction price sales revenue, about evenly split between new and used. Another interesting point: Krafcik thinks that the US is the leading automotive market in the world and not China. “China doesn’t yet have a used car market,” he said.
4. Terry Dortch, president and CEO, Automotive Compliance Consultants, Inc., thinks that ancillary products is what the federal agency is looking into next. Richard Cordray, director of Consumer Financial Protection Bureau (CFPB), has made a statement about it. Value to price – it’s not legitimate unless it gives good value to price, Cordray has said. He wants dealers to be as transparent as they can be – with pressure placed on dealers’ F&I offices. CFPB was probably the top, key theme at NADA 2015 — and it was enough for keynote speaker Jeb Bush to make it the subject of his speech.
5. While working with, and marketing to, members of the Millennial generation was a key theme at NADA 2015, it’s not as difficult as you might think, says Keith Pretty, president and CEO of Northwood University. Northwood instructors have found Millennials to be hard working, focused employees at dealerships across the country. The working environment is transitioning along with the overall automotive market through new technologies and what’s expected of dealers by consumers. Young managers appear to be willing to adapt to what their peers expect, Pretty said. (Read more about what makes for great leaders in the dealer space with a recap of Northwood’s seven award winners given out on Saturday morning.)
6. Black Book expects to see a wider value depreciation gap in 2015 — 14.5% depreciation versus 12.1% in 2014 and 12.8% in 2013, said Ricky Beggs, senior VP and editorial director, during an interview. That will come through a greater supply and more new car sales with trade-ins. “We expect about 60% with trade-ins,” Beggs said. Off-lease has been coming back into certified pre-owned vehicle sales, but the volumes will be increasing this year and next and the impact will be felt more on used car prices. Beggs and his colleague Anil Goyal, VP, analytics and strategic partnerships, see market stability coming from the lending environment. That was the key theme at AFSA Vehicle Finance Conference in San Francisco right before NADA 2015, Beggs said. “It’s a very positive environment out there for lenders,” Beggs said. Goyal also sees positive signs coming from strong economics with unemployment being low, several industries are seeing growth, more credit availability and the right balance in their investment portfolios.
7. Kevin Filan, VP of customer marketing at Cox Automotive and Michelle Krebs, senior analyst at AutoTrader said during an interview that they see hybrid and electric vehicle sales continuing to soften this year – much of that coming from advancements in internal combustion engines with stop/start, direct injection, and turbocharging leading the way. Performance and efficiency has been the winner lately. There’s still a lot of shopper interest in hybrids, but that’s many times diverted over to fuel-efficient vehicle purchases, Krebs said. Overall, dealers are turning about 60% of their used inventory in 90 days; high-performing models are seeing 60% in 60 days, Filan said. Cox Automotive sees a lot more used cars coming off-lease but growing certified pre-owned sales is softening the blow for now. Small crossovers are strong in price but midsize cars are not, Filan said. An interesting side note: in one of their recent studies AutoTrader found that consumers don’t clearly understand what MSRP means. Their top priorities are guaranteed price and what the monthly payment will be. They will drive up to 30 miles from home to save 5% to 10% on the car price, according to Filan.
8. Mike Williams, VP mobile solutions at Black Book, says that dealers and remarketers are using the Black Book mobile app for a customized look at reporting – what makes the most sense to them in their market and vehicle lineup. It helps them improve inventory management, pricing, and viewing auction windows. They can personalize it, such as using the system’s profit calculator. The dealer can base analysis of what that dealership practices – how much spent on conditioning, new tires, etc. Used car managers at dealerships are playing the lead role in oversight – they might be on a desktop integrated with their traders’ mobile apps when they go to auction. Integration of platforms a big area of focus now – such as auction activity, Carfax reports, photos, and selling one-off, specialty vehicles. Just like it is for customers to dealers, building trust is very important between dealers going to auction and creating “virtual inventories” together online, he said. Things are certainly changing for dealers – Williams might see them still using VIN scanners at an auction. He asks them why they’re not yet using a run list that already has all of that information in an organized, accessible format. Making changes to new technologies comes down to personal perceptions and choices, he said.
9. To sum up what it was like attending NADA 2015 as the Used Car Market Reports editor, I would say a key theme was that there’s a changing role dealers are now playing in used car market dynamics and valuations. It’s not all about off-lease, off-rental, gas prices, and incentives anymore. For the past five years, dealers have been more carefully managing inventory and accessing it around the region and country — not just their local market as they did in the past. Profitable used car sales transactions are not really about reaching the highest pricing. It’s more important to hit solid prices and higher sales volumes for that market. Mobile apps are working for them – becoming more customized to their needs. They’re analyzing trending reports more often and customizing them to their inventory and market dynamics. Franchised dealers are devoting a lot more of their resources to used/pre-owned sales than they were doing five years ago — are seeing the payoff in profitable sales transactions.
10. Two more thoughts — CPO sales are growing and may look a bit different with specialized, branded programs coming out from a few automakers and third parties. Also, watch where dealership mergers and acquisitions are going with Warren Buffett of Berkshire Hathaway and investor George Soros interested in making a similar, major dealer acquisition.