NEW ORLEANS – Dealers heard mixed news regarding next year’s market at this year’s National Automobile Dealers Association annual confab. They also got mixed news from the manufacturers during the make meetings.
This year’s new car sales are a bit of a mystery. The NADA forecast for 2017, chief economist Steven Szakaly told a gaggle of reporters, is for 17.1 million new cars and trucks to be sold in 2017, down slightly from last year’s 17.4 million units. Supporting 2017 sales: Positive GDP growth, strong employment, rising consumer confidence, and low oil prices.
Sales may return to last year’s level or even higher, however, says Szakaly, depending on the new administration’s policies regarding cutting taxes and reducing regulation. The average income of an automobile buyer is around $80,000, he says, and a tax cut would benefit those consumers.
There is some uncertainty, however. President Trump has said he will tax imports from Mexico, which includes some vehicles and a large number of automotive components. Taxing those would result in higher prices that would trickle down to the consumer and ultimately impact sales at dealerships.
Szakaly declined to comment on any negative impact from future policies given the lack of information. “It is a massive unknown right now,” he tells Automotive Buy Sell Report.
On the used car side, the news is good for consumers, but not so positive for dealers. Used car sales are expected to rise in 2017 on the back of a big increase in availability as cars come off lease, pushing prices lower and creating an excellent value proposition for consumers. J.D. Power forecasts some 14 million used vehicles five years old or less will be in the market in 2017, up six percent from 2016.
But that glut of used cars at good prices will cause buyers to give the used market a fresh look. As consumers shift from new car purchases to used, automakers will offer ever-higher incentives, says Johnathan Banks, vice president at J.D. Power Valuation Services. That will put more downward pressure on used car prices, which will make them even more attractive to consumers.
“It could be a vicious cycle,” he says.
That is already occurring. There is a shift of 300,000 to 400,000 buyers from new to used, says Szakaly.
The type of consumer buying a used vehicle is also changing, according to Melinda Zabritski, senior director of automotive finance for Experian. “The used car market becomes increasingly prime,” she says in a presentation.
Meanwhile, dealers heard a mixed bag of news from the manufacturers.
For Volkswagen dealers, who have endured what could only be described a year from hell, the news was good. They will be compensated and average of $1.85 million each for lost sales from the diesel emissions scandal and have a bevy of new cross over vehicles to sell in coming years, according to Automotive News.
Mercedes-Benz dealers will also receive larger allocations of crossovers and SUV to sell in the U.S., they heard.
Meanwhile, Cadillac dealers seem a bit happier with the Project Pinnacle plan that requires dealers to adhere to specific facility and customer service standards or risk missing out on incentives. In New Orleans, brand chief Johan de Nysschen told dealers that it will allow them to receive dealer-incentive payments sooner and receive partial payments. Other tweaks are possible before the program launches in April, he says.
For FCA dealers, there was a bit of a lump of coal. The automaker plans to add up to 400 new dealerships to its some 2,500 stores, reported Automotive News.