LAS VEGAS — With three months of the first quarter nearly in the books, Patrick Manzi, senior economist of the National Automobile Dealers Association, highlighted the current state of auto retailing during a press briefing at the NADA Show in Las Vegas.
Regarding new-car sales, Manzi reported, “Through February, U.S light-vehicle sales were down about 20,000 units year over year. And several winter storms that pounded the East Coast throughout March are likely to put a damper on March sales.”
Despite the economic headwinds likely to impact the retail-auto industry this year, NADA is sticking to its original sales forecast of 16.7 million new cars and light trucks in 2018. Through February, light trucks accounted for nearly 68% of new vehicles sold.
“New-vehicle sales continue to shift more to light trucks,” Manzi said. “We expect average transaction prices to continue to rise throughout the year because of consumer preferences for light trucks and vehicles with more high-end advanced safety features.”
Turning to used cars, Manzi cited Cox Automotive data predicting nearly 3.9 million lease returns in 2018, an increase of 8% from 2017. “The rise in off-lease volumes will spur growth in the certified pre-owned (CPO) used market, and 2018 could very well be a record year for CPO sales. CPO sales provide customers with the peace of mind of a factory warranty and dealership inspection process.”
Manzi added that the influx of off-lease vehicles will put pressure on new-vehicle sales because the increased supply will drive down used-vehicle prices. “Consumers will see a widening price difference between a new vehicle and a similarly equipped used or CPO vehicle, and will consider buying used.”
The economist said interest rates are expected to rise three or four times this year with the federal funds rate above 2%, which will add pressure to already increasing vehicle-transaction prices and auto loan terms.
“Increased take-home pay from the new tax reform legislation passed at the end of 2017 is likely to help offset some of the increase in monthly payments from higher rates,” he said. “These rate rises will affect marginal buyers with poor credit the most who will consider their used-vehicle options. Buyers with good credit and high incomes are unlikely to be affected by rising interest rates.”
Finally, Manzi provided an overview of NADA Data 2017, the annual financial profile of U.S. franchised new-car dealerships. New-car dealerships closed out 2017 topping $1 trillion in sales.
“While sales, on average, at dealerships were relatively flat year over year at $59.7 million, most of the growth in industry-wide sales came from the opening of new-retail outlets,” he said. “Increasing transaction prices and shifting consumer preferences for higher cost light trucks helped dealerships increase sales while overall industry sales volume declined.”
In the service department in 2017, dealerships wrote 316 million repair orders with service and parts sales of $114 billion, an increase of 4.2%, according to NADA’s report.
“Over the past few years as margins on the sale of a new car have tightened, dealers have focused on their service and parts business,” Manzi said, noting that service and parts sales at new-car dealerships increased at an average annual rate of 6% since 2009, and currently dealers’ fixed-operations departments — including service, parts, and body shops — accounted for 49% of gross profits in the average dealership, according to NADA Data 2017.
There are two versions of NADA Data 2017. One is a general overview of the retail-auto industry, with infographics that can be shared by print and broadcast news outlets as well as on social media. The other, more detailed version looks at each dealership department, employment and payroll, trends in dealership advertising, as well as the entire retail-auto industry.
To download either version of NADA Data 2017, click here.
Originally posted on F&I and Showroom