Beggs: ‘Normal’ Doesn’t Describe Close of 2012 Wholesale Market

Along with offering his thoughts on what this year might hold, Black Book’s Ricky Beggs didn’t use the term “normal” to describe the closing of 2012.

In his first online video analysis of 2013, Beggs told dealers that “throughout these party-filled holidays and a couple of slightly shortened work weeks, I must tell you that from our auction attendance at both physical and online auctions, the facts presented by the data we have recently received and the comments from the dealers we have talked with recently, the market would not be described as normal in relation to the December activity of the past few years."

In continuing his commentary contained in the latest episode of “Beggs on the Used Car Market,” the managing editor highlighted trends that’s been going for the past six weeks.

“The percentage of adjustments requiring raises to the most recent published values has been at levels we have only seen after the calendar has turned to the first quarter of a fresh year,” Beggs said. “The initial push of strength we believe was a result of additional vehicles needed to replace many of those damaged during Hurricane Sandy.

“The most recent strength has to be the overall pent-up demand bringing forward an early spring market,” he continued. “Consumers have put off buying their next new or used car as long as they can or at least want to. Their current car is old and consumers want to move forward now that the election issues are behind us with only the fiscal cliff still hanging over our heads.”

During the past six weeks, Black Book found the increases amounted from a low of 31 percent of the adjustments to a solid 50 percent this past week for a 39-percent average during this period.

Looking next at specific vehicle segments, editors found that the average truck segment price change produced a $5 gain, fueled by the strength of full-size vans. Among the units, passenger versions moved up $74 while cargo models jumped by $56.

While not to the vans’ level, Black Book discovered several other truck segments posted price climbs last week, including full-size pickups (up $5), compact pickups (up $3) and compact crossovers (up $3).

Meanwhile on the car-segment side, overall prices slid $37, the smallest average decline during the past five weeks and the second smallest decline since the week ending June 15.

Even with the national average gas prices at the pump at $3.26, only 1 cent above the low point of the last year, editors noticed the three smallest cars in physical size that offer the most fuel efficiency also boast the most stable values within the car segments. Black Book found entry level cars softened by just $1 while compact cars (down $5) and entry midsize cars (down $6) didn’t drop by much.

“The better equipped entry type cars are helping make these segments more enticing as consumers are not having to give up all the creature comforts with today’s smaller vehicles,” Beggs said.

Beggs wrapped up his latest analysis by looking ahead.

“If history is an indicator, the market should continue to show stability and maybe even a little strength,” he said. “The past four weeks during December with positive changes averaging 40 percent, almost one year ago during January 2012, the four-week positive changes averaged 48 percent.”

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Analysts Predict Robust New & Used Market Growth for New Year

A new year has begun, and predictions for a prosperous year for the country's new- and used-car markets are pouring in. Factors such as increases in available trade-ins and high demand are expected to boost used sales, while numerous redesigns may ramp up the new market.

According to a study released from Indian firm Ken Research titled, “The US Used Car Market Outlook 2016 - Driven by Late Model Used Cars,” the nation’s used-car market revenue is expected to reach close to $480 billion by 2016.

Providing some background to these numbers, officials pointed out that in 2006, as the economy began to slow down, used market revenue came in at $340 billion and grew less than 1 percent during 2006–2011.

What is pushing this expected boost?

The report cited the “high average prices of used cars” as the main factor behind this growth.

“Average prices of used cars, price of gasoline and diesel, improvement in the access to F&I services, increased sales of new cars which will ensure the availability of late-model used cars, consumer confidence will drive the U.S. used-car market in the future,” the firm’s research analysts further explained.

The company also predicted that hybrid used vehicles will continue to gain market share.

And with new light vehicle registrations in the U.S. in 2013 expected to rise 6.6 percent over 2012 levels to 15.3 million vehicles, according to Polk, a boost in trade-in rates may bode well for the used market, as well.
“Used-car sales and new-car sales are complementary in nature, if the prices of one incline the other kind will also follow suit. Sales of new cars will determine the size of future used car inventory,” Ken Research shared.

 Breaking down Polk’s analysis in greater detail, the company also expects production rates to jump, increasing to the 15.9 million unit range (an anticipated 2.4 percent increase from 2012), driven by an improving economy and capacity expansion in the region.

In fact, consumers and dealers in the U.S. may be on board for an exciting year in the automotive world. According to Polk, new-vehicle introductions in 2013 will increase significantly, with 43 new vehicle introductions in the U.S. planned for the year, up nearly 50 percent over 2012 levels.

Moreover, over 60 vehicle redesigns are expected to hit the lots in 2013, according to Polk.

“Polk expects continued recovery in the industry in 2013 and 2014, a positive sign for the U.S. economy,” said Anthony Pratt, director of forecasting for the Americas at Polk. 

“The auto sector is likely to continue to be one of the key sectors that lead the U.S. economic recovery, however, we don't expect to realize pre-recession levels in the 17 million vehicles range for many years. However, our baseline forecast hinges on Washington's ability to draft a budget plan that will avoid $600 billion in spending cuts and tax increases,” he continued, noting decisions in Washington may play a key role in how the automotive industry continued recovery pans out.

Polk also is predicting that the U.S. automotive market will return to pre-recession production rates by 2016. The company shared it expects a return to 16 million units in the U.S. by 2015 at the latest, a rate last achieved in 2007.

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Beige Book: Used Market Consistently Strong

The overall retail sales market for dealers examined by the Federal Reserve in its most recent reporting period appeared fairly positive, and for the districts sharing insight on used-vehicle sales, the environment is a solid one.

In its latest Beige Book report, Fed pointed out rather stable used-vehicle sales, as well as a robust new-car market.

“New-vehicle sales remained strong and inventories of some popular models were tight. Sales of used automobiles held steady,” officials noted in the report.

Expanding upon this, the Fed added: “Automobile sales generally remained strong, although the pace of growth moderated in a few districts.

“Sales of used vehicles held steady, and a slight decline in prices was reported. Inventories of popular vehicles were tight,” it continued. “Outlooks were positive, and contacts across several districts expect steady growth in sales in coming months.”

While not all 12 Fed districts offered insight on their respective area’s used-vehicle market, the ones that did noticed dealers reporting good signs for their business.

In the Second District (New York), for example, dealers talked of a healthy used market.

“The used-car market continues to be strong and prices remain elevated, although dealers in the Buffalo area note some recent softening in prices at auction,” the Fed said of the Second District. “Wholesale and retail credit conditions remain favorable and continue to improve.”

Moving over to Cleveland, the Fed observed a similar trend in the Fourth District.

“Purchases of used vehicles were fairly steady year-over-year — inventories are building and prices declined slightly,” officials noted.

Sharing more auto-related insight, they added: “On the financing side, we heard two reports that banks are more willing to work with dealers. Leasing activity picked up. Dealers are investing in manufacturer-mandated facility upgrades and imaging programs. Hiring for sales and service positions continued, but at a very slow pace.”

In the Eighth District (St. Louis), the Fed gave a more concrete numbers breakdown of how both the new and used markets are faring. Among its data points, the Fed illustrated that a fifth dealers in the region saw used sales climb relative to new sales, and another fifth saw the reverse.

Lastly, the Fed shared some of its used-vehicle insight from the Twelfth District (San Francisco). It found that consumers here are still going after used vehicles, and with low inventory, this led to high prices.

“Demand remained strong for used vehicles and combined with tight inventories to keep prices elevated,” the Fed explained.

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Beggs: Wholesale Market Is ‘Busting Loose’

The new year already has generated a new record for Black Book’s editors as last week they established a new mark for the most daily adjustments.

Black Book’s staff made a daily average of 3,280 adjustments last week, almost 400 more per day than the previous high set during the week ending Aug. 12.

Thanks to the bevy of activity, managing editor Ricky Beggs acknowledged the conversation within Black Book’s office has changed significantly.

“The water cooler talk that has been often focused on college football for the past four to five months is now over until August or September, and once again, a team from the SEC has been crowned the champion,” Beggs began during his latest video blog, “Beggs on the Used Car Market," referring to college football's Southeastern Conference.

“The champion of the used-car market this week was the fact that 53-percent of the changes the editors made were increases,” he continued. “We haven’t had this level of positive changes since the week ending last May 20.”

While the amount of daily adjustments set a new precedent, Black Book discovered that last week’s overall movement settled at a decline of slightly less than $5.

For comparison, Beggs mentioned that when Black Book previously established its daily adjustments record last August, the overall movement was a decline of $119.

Beggs explained that last week’s overall dip “was definitely supported by the various dealer and auctioneer comments we heard such as ‘expecting an upturn’ and a more enthusiastic ‘on the verge of busting loose within the next two to three weeks.’”

“With slightly more 'average' condition values adjusted than 'clean,' and more of them being increases, this is a reflection of the interest and demand due to the tax season type cars and trucks,” Beggs continued.

Breaking it down by segment, Beggs noted: "For the first time in at least the past 12 weeks we not only have one car segment, but two that increased in price week over week."

Editors found that entry midsize cars ticked up by $1, while the entry level cars increased by $12.

Black Book noticed that three other car segments declined by $22 or less for the week: full-size cars (down $22), compact cars (down $15) and upper midsize cars (down $11).

Turning over to truck segments, Black Book determined that the overall change settled at a decline of $15, a level Beggs said was similar to the past three weeks.

Editors mentioned that compact pickups have increased five of the past six weeks and were also joined a week ago by full-size SUVs, which increased by $9.

Showing the overall stability of the trucks, Black Book indicated that there were six of the 14 segment types that declined by just $7 or less.

Beggs closed his commentary by elaborating how why the wholesale market appears to be heating up.

“As we gathered and analyzed all the market data this week, another sign of the increasingly active market was an increased level of data on quite a few more late model vehicles, those from model years 2010 through 2012,” Beggs shared.

“From this analysis we included market driven data values on an additional 68 vehicle listings. These were a mixture of highline cars, full-size trucks, entry midsize cars as well as compact and midsize crossovers,” he continued.

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Dealers weigh giving customers great loans upfront or tapping refi market

Brian Benstock of Paragon Honda and Paragon Acura in New York says his stores keep customers happy by giving them competitive rates upfront.

If auto loan refinancing isn't on your dealership's radar, it may be time to put it there.

The gathering elements of historically low interest rates, auto owners searching out lower monthly payments and lenders scrambling for business could converge to bury unprepared dealerships under a pile of reserve chargebacks.

Although dealerships aren't seeing a lot of vehicle refinancing yet, a number are standing guard. They're also taking more measures to make sure they retain these customers, including partnering with an auto refinancing company.

There are no readily available industry data that track refinancing volume. Nevertheless, "you know it happens and you know it's out there," says Melinda Zabritski, director of Automotive Credit for Experian Automotive. "There are big pockets of customers who can move down to lower rates," she says, referring to near-prime customers who could only get subprime financing in 2009-10.

Online lender OpenRoad Lending, which gets roughly half its business from auto loan refinancing, saw about a 15 percent rise in refinancing applications and overall loan volume last year, says CEO Chris Goodman.

Although credit is improving, he says, people "don't want to buy new vehicles and gobble up more" money. The average model year his company is funding is 2009, he says.

Since customers rarely give warning that they're refinancing, dealers tend to learn about it through finance reserve chargebacks. Ouch.

Dealerships trying to save these customer relationships seem to be divided into two camps: beat 'em or join 'em. Either they're making customers attractive offers they won't want to give up or they're getting in on the refinancing action.

At Langdale Ford in Valdosta, Ga., Finance Director Marvin Eleazer's goal is to see no refinancing at all. "If we see one a month, I get rather irritated," he says.

That's because in addition to losing credibility with customers, Eleazer says, you typically lose their F&I products business, too, since they often opt for cheaper -- though often inferior -- coverage offered through their new lending source. Getting hit with a $700 to $800 reserve chargeback and having to refund $600 on a service contract and $400 on a GAP policy gets kind of pricey, Eleazer says.

Although Langdale Ford has not seen an uptick in refinancing lately, he says, "It's always on the horizon." Several years ago, the mid-sized single-point dealership was seeing two to three refinancings each month. "We spent time finding out the root cause, took control and made serious decisions with rate administration," Eleazer says. His department now tries to hover within 100 basis points of the assigned rate and focus more on products and solutions than rate reserve.

Haddad Motor Group of Pittsfield, Mass., uses a couple of strategies to keep finance reserve chargebacks to a minimum, says F&I Director Chris Cochran. The dealership's pay plan encourages finance people to make money on products, not reserve. The group also keeps its finance rates lower than the local credit union, which, Cochran says, has been advertising at 2.99 percent for at least a year.

Brian Benstock, general manager of Paragon Honda and Paragon Acura in the New York borough of Queens, says he observed an uptick in refinancing options in the market last year but says refunding finance reserve isn't something Paragon encounters often. He credits giving customers very competitive rates upfront and then continuing to educate them about their options.

Paragon lays out for customers, side by side, the costs of refinancing their existing car, purchasing a new car with similar features and buying a pre-owned car with similar features.

Although refinancing's low rates may look very attractive, the store explains to customers that an older car typically depreciates much quicker than its loan will be paid off, which could keep them in the vehicle longer than they'd like or put them in a negative-equity position.

"The customer then has a clear picture of what every scenario is and the benefits of each, and we are happy to help them with any of the three options," Benstock says.

Paragon, which has a team dedicated to analyzing the portfolio of each customer, reaches out to them when they enter an equity position on their current vehicle. More often than not, customers opt for a new model for a lower monthly payment and with no money out of pocket.

"In the grand scheme of things, it is a win-win situation for both the customer and Paragon," Benstock says.

"We desperately need qualified pre-owned cars, and they are happy to drive a newer car for the same or less a month."

Antonino Automotive Group of Connecticut is taking a different approach to refinancing. Through its affiliation with Auto Refi Now, a loan matching service for dealers and auto consumers, it's able to legally process refinance applications.

On average, the group helps 10 customers per month refinance at each of its nine dealerships says Justin Hoopman, general manager of the Girard Ford store in Norwich. That's not counting new vehicles purchased by customers who come into the dealership through Auto Refi Now.

"It's a growth machine for us," says Hoopman, who says Auto Refi Now makes it easy to farm leads and bring customers back to the dealership to re-evaluate their needs.

Auto Refi Now enables a loan refinancing to be processed at the dealership through software menu systems that tie into dealership management systems.

Dealers must use Auto Refi Now's preferred lenders, says President Spencer Walters, a former dealership finance manager. Greenwood Credit Union of Warwick, R.I., has been its main funding source over the past nine months, he says.

Walters says average dealer profit on a refinancing is about $1,000, with a sizable amount coming from the sale of GAP policies.

It is a benefit being able to mention refinancing in the dealership's newspaper ads, says Hoopman. "It's an advantage to us and an advantage to the customer."

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