By Alysha Webb, Editor and Publisher
Steven Szakaly of NADA
New car sales in 2015 are expected to nudge against 17 million units, according to NADA chief economist Steve Szakaly. That is good news for those looking to sell their dealerships, he said.
“The dealers are looking at an overall improving market for what their dealership is worth,” said Szakaly, who spoke with Automotive Buy Sell Report on the eve of the Los Angeles Auto Show.
NADA forecasts new car sales in 2015 will rise to 16.94 million units from a 2014 forecast of 16.4 million units. That growth will be driven, and supported, by GDP growth of 3.1 percent, continued low interest rates, and low gas prices.
Szakaly points to non-traditional buyers coming into the market — such as Warren Buffett’s Berkshire Hathaway and family offices — as another support for dealership prices.
“I think we are going to have another good year for sellers,” he said. “Better pricing and more competition for dealerships.”
Unlike this year’s rocky recovery, NADA sees 2015 as a year of steady economic growth. New job growth will average 242,000 per month.
Gas prices should remain weak throughout 2015. NADA forecasts West Texas Intermediate crude to average $71-73 per barrel in the first half of 2015, rising to an average of $83 in the second half.
There are a few caveats to this rosy picture.
“We would like to see a rise in wages and incomes,” said Szakaly. “That should happen second half of 2015. It is critical to maintaining sales momentum.”
Interest rates will also rise slightly in the second half of 2015, but remain low, he said. The rate that the Federal Reserve charges its best customers to borrow — its “policy rate” — will not rise above 1 percent.
Consumer borrowing rates will also rise by around 120 basis points by the end of 2015, said Szakaly.
For dealerships, the rise in the Fed’s policy rate will affect their rate of return on investment and operating costs, said Szakaly. Floor planning costs will rise, as will mortgage and facility improvement costs. That means the cost of meeting manufacturer’s image plans will go up.
That doesn’t dent NADA’s optimism.
“In spite of the expected rise in rates our forecast remains positive,” said Szakaly. “The only negative risk is in the housing market. The rate increases could shift the balance against purchases and construction. That may affect the light truck market.”
Consolidation to continue
Though dealerships in general are having a strong year that strength has not been evenly distributed. Some dealerships in the Midwest and Northeast are only having a so-so year. The recovery in 2015 will be more evenly spread, said Szakaly.
“We will see much broader economic and employment growth,” he said. “We have all the fundamentals in place now, where we will have stability, lower gas prices, and a relatively low interest rate environment.”
Nonetheless, dealership consolidation will continue, said Szakaly. “When you go from having one or two stores to seven or 10, you start to spread your costs much more efficiently,” he explained. “There is a benefit in terms of economies of scale per units and per employee basis as well.”
