It has been a year since the economic apocalypse hit worldwide. Auto dealers, already battling declining sales, were especially hard hit as factories teetered on the brink of extinction and both retail and wholesale financing dried up. The following are some random thoughts about where we have been and where we might be headed.
New Vehicle Sales – Even with the “cash for clunkers” program, sales volume is still projected to be significantly lower than in prior years. It is anticipated that it will be a long time before sales climb back over 14 million units. Factories have begun to ramp up production to restock dealers who have seen their inventory become depleted by factory shutdowns.
Used Vehicle Sales – Used vehicle sales have been strong as consumers continue to remain cost conscious in these weak economic times. Dealers are reporting stronger margins on used vehicle sales as consumers vie for limited supplies. Dealers are noting that auction prices are increasing and that residual values remain solid.
Leasing – With stronger residual values, leasing has started to come back as a viable option. Credit companies are more willing to finance leases because of this. Indications are that leasing will be limited to specific makes that can hold their residual value.
Cash for Clunkers – Almost every dealer can recount a horror story related to the program, whether it happened to him/her directly or a dealer he/she knows. In spite of the numerous issues related to the program, there were many upsides. First, dealers sold cars. In fact, many dealers could have sold more if inventory had been available. Vehicles that are normally classified as clunkers are typically the ones that dealers suffer wholesale losses on. It has been reported that many dealers had better than anticipated margins from these sales as consumers did not price haggle, believing that the rebate was the only benefit available. Additionally, these sales will generate future warranty and service work for the dealer.
Going Forward – Though it appears that the worst is over, most experts predict that it will take most of 2010 before we start to pull out of our economic doldrums. What does that mean for the dealer? It will be important to continue to closely monitor all operations of the dealership, manage inventory and maintain control over costs. Those dealers able to accomplish this will best position themselves for success when the economy recovers.
Downey & Company specializes in finance, tax and management of automobile dealerships. For more information or a free proposal, please email Paul McGovern at pmcgovern@downeycocpa.com.
