Cox Insights: Dealer Sentiment Up

By Jeffrey Bellant February 05, 2020
Michigan-based EV startup Rivian's R1T. Smoke predicts EV sales will increase to 6% by 2025 Michigan-based EV startup Rivian's R1T. Smoke predicts EV sales will increase to 6% by 2025 image: rivian

 

Strong dealer sentiment, especially on the used-car side, marked a positive start to 2020 and a relatively upbeat presentation at the Cox Automotive Industry Insights Breakfast in Detroit on Jan. 13.

There were also positive signs around consumer sentiment, wage growth and unemployment.

Jonathan Smoke, Cox Automotive chief economist, and Charlie Chesbrough, senior economist, were just two of the speakers during the event, which coincided with the North American Car, Utility and Truck of the Year awards.

Cox surveyed 2,000 dealers across the country and dealer sentiment was positive, Smoke said.

“The headline we learned in the fourth quarter is that we were ending 2019 in much better shape than we did in 2018,” he said.

At the end of 2018, there as a big selloff in the stock market, a government shutdown and the threat of the Fed raising rates in 2019.

“This year we see changes,’ Smoke said. “When you dive into the data, what we find is the franchise dealers are roughly exactly where they were, which is roughly positive and it’s still been good.

“The difference seems to be coming in independent dealers.”

Jonathan Smoke at the Cox Automotive Industry Insights Breakfast in Detroit on Jan. 13

 

Changes in inventory is started to change the game that had favored franchise dealers over independents, Smoke said.

New-car dealers were positive, even as new-car retail sales declined throughout the year. One reason is they were able to move some shoppers, such as subprime buyers, to the used-car departments.

Inventory is declining and it’s going to become more of a challenge further into 2020, Smoke said.

“The used-vehicle market, however, gets higher marks both by franchises and independents, relative to the new-vehicle  market,” Smoke said.

A key component of that sentiment has to do with used-vehicle inventory.

“A year ago, independents described it as ‘declining,” now they describe it as ‘growing,’” Smoke said. “Obviously, if you don’t have inventory, there’s no way to grow your sales.”

Chesbrough said a lot of that inventory is coming from older vehicles, instead of new cars.

 

He added that with the average price of a new retail vehicle nearing $40,000, it makes it very hard tor the average person to afford a new vehicle.

“Prices have been rising dramatically,” Chesbrough said. “On average, from 2012 to 2019, the average MSRP has gone up about 21 percent across different product segments.”

For example, in 2012, only 6 percent of the market were vehicles above $50,000. Now that number is 24 percent.

Those increases have been weighted toward the popular SUV and truck segments,

The average new-car payment in 2019 was $566, while the average newer used-car payment was $419.

Chesbrough said in the case of a recession or dip in the economy, the less popular smaller or mid-size cars may be an affordable option for consumers.

Smoke was still optimistic.

“If I had to pick a single theme (for the 2020 economy), it would be, ‘not so bad,’” Smoke said.

A 50-year low in unemployment numbers and other job growth numbers has boosted consumer sentiment.

Consumers are seeing strong wage growth, though it is slowing down in comparison to 2018 and the effects from the tax reform legislation.

Despite the good news, Smoke also pointed out a few challenges in the market,

“No 1, we’re seeing automotive finance slow down,” Smoke said.

With a record amount of loans outstanding, the question is how much growth is there still to come, he said.

“Then when you throw on top of that a declining new retail sales market and a growing share of vehicles being financed that are increasingly more used, the finance dollars start to slow down,” Smoke said.

A reluctance among lenders to finance subprime is part of that problem. Subprime new-vehicle borrowers were seeing an 18.9 percent average rate in December, up two fill percentage points compared to the prior year, Smoke said.

Chesbrough  doesn’t expect to see the big fleet and rental volumes that we saw in 2019. He said growing fleet volume from the current numbers would be a challenge.

Still, he said 4.1 million off-lease vehicles are expected to come back to the marketplace in 2020, the same amount as 2019.

In terms of a potential recession, Chesbrough said the Manheim Index showed 33 months of unprecedented growth up to October.

The overall forecast for the market is 16.6 million vehicles in 2020, which still la healthy number, he said.

The used market is expected to sell 39.4 million.

 

 

On Jan 28th 2020 CBT interviewed Jonathan Smoke , chief economist for Cox Automotive, about year-end sales data for the auto retail industry, vehicle affordability, EVs and more. Watch Below

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Last modified on Thursday, 06 February 2020 22:08

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