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By: David Meyer, Executive Vice President
Good news for those of us in the automotive industry! We’ve done our research, as I’m sure most of you have, and the results for the 2012 year were astounding. Being an election year coupled with recent economic changes left many dealers asking the forsaken question…how will this tide affect my dealership?
To much avail, the year ended well with used-car sales having the best year since 2007 with 40.5 million units sold! That's up 4.5 percent vs. 2011's 38.8 million.
We saw it coming….The trend in wholesale pricing during 2012 consisted of a relatively flat first quarter, followed by declines in the second and third quarter, and then a strong upward rally in the fourth quarter. Results of the 4th quarter were up and the numbers were showing it. Wholesale used vehicle prices rose 1.2% in December. With the Manheim Used Vehicle Value Index closing out the year at 124.1, the year-over-year decline was reduced to a modest 0.8%.
On an annual average basis, the decline in the Manheim Index was 1.0%.....it is not a pure coincidence that this was the same pattern exhibited by other major economic variables, such as employment, retail sales, and consumer confidence, each of which also slowed in the middle part of last year.
The strong rise in wholesale used vehicle prices in the fourth quarter was also a byproduct of the smooth model year transition in the new vehicle market as well as the reduced supply and increased demand created by Hurricane Sandy.
Down to the details:
New vehicle sales finish the year on a strong note- New car and light duty trucks sold at a seasonally adjusted annual rate of 15.4 million in December as activity continued to be supported by pent-up demand, greater credit availability, and targeted incentives.
For the full year, new vehicle sales reached 14.5 million. That was fully one million units higher than what the consensus forecast called for at the beginning of the year.
The fact that sales surprised to the upside explains how inventory levels were kept in check during the year, which, in turn was a major support for wholesale used vehicle values during the year.
The supply of new units on dealer lots (on a twelve month rolling basis) has remained below 60 days for 33 consecutive months – the longest stretch ever!
Used vehicle retail sales top 40 million in 2012- Used vehicle sales also finished 2012 on a strong note as dealer deliveries rose 18% in December, according to CNW. For the year, dealer used vehicle retail sales rose 5%. Although dealers faced margin pressure throughout the year, faster inventory turns, operating efficiencies, and strong F&I income kept used vehicle operations very profitable. Franchised dealers were up 8.2 percent collecting nearly 37 percent of all used sales while independent dealers held 34.6 percent, down 2.5 percent, and Private Party sales topped 2011 by 3.1 percent
Midsize cars show the greatest pricing strength. Over the past year, midsize cars have shown the largest wholesale price increases. Mark it up to ongoing demand shifts in the retail market and stronger product offerings in the wholesale market. For the year, luxury cars and SUVs/CUVs had the weakest pricing.
The number of Sub-prime Buyers keeps increasing. Buyers with a FICO score of 550 or less jumped in December of this year to 17.1 percent of total used sales compared to 9.8 percent in December of last year. This shows the increasing need for deep sub-prime financing.
and now for the better news!
Further growth in new and used vehicle markets expected for 2013- With wholesale supplies increasing in 2013 and credit availability likely to remain good, used vehicle dealers should see increased sales again in 2013. But, of course, economic risks remain.
The temporary avoidance of the fiscal cliff was a positive, but the fact remains that 77% of all U.S. households will face higher taxes this year relative to 2012. That's a result of the loss of the temporary two-percentage point reduction in the payroll tax. To be sure, no one expected the payroll tax holiday to be extended but that doesn't mean that households now experiencing a $75 to $100 loss in after-tax monthly income won't alter behavior. Furthermore, with businesses shifting bonuses, stock options, and special dividends into the latter part of 2012, economic activity the coming year may have an atypical seasonal pattern.
Other news: Delay in Tax Returns. The IRS just announced that IRS offices will open Jan 22 for 2013 tax filing season, it is estimated that first refund checks won't be funded until Feb 1, over a week later later this year, which will have a delay on Tax Season expected sales.