Area Car Dealers Anticipate Strong Sales in 2012
With the average age of cars on the road soaring higher than ever, Scott Sarat says, most purchases these days are based on need, not want.
Turns out that was just the beginning.
“The scrappage rate of cars since 2008 has outpaced the sales of cars by significant amounts,” said Mike Balise, vice president of his family’s regional chain of dealerships. “They scrap about 15 and a half million cars a year, and the market used to sell more than 16 million cars. But that went down to 8 and 9 million. Then last year, we got to 13 million, so that was pretty good.”
Clearly, “last year wasn’t the best year we’ve ever had in the car business when it comes to volume and profitability,” he added, noting that, given the still-sluggish economy, it definitely counted as progress, with more of the same expected in 2012. “I would say our volume should increase around 10% this year.”
Scott Sarat, general manager of Ford of Northampton, is seeing the same upward trend. “Last year saw a surprise influx of car sales, and this year they’re forecasting 13 to 14 million cars sold, which would be the highest since the Cash for Clunkers days,” he told BusinessWest. “So there’s a lot of opportunity out there, and a lot of dealers fighting for a portion of that pie.”
Gary Rome, president of the Hyundai store in Holyoke and the Kia dealership in Enfield that bear his name, said last year saw a sales uptick of 8%, but it was a frustrating increase because of supply issues — which he hopes won’t be repeated in 2012.
“Hyundai and Kia in general were up quit a bit more than that, but we had a lack of product because they can’t build cars fast enough; that’s been our challenge,” he said.
For this issue, area dealers tell BusinessWest why industry trends have them cautiously optimistic, and detail some of the driving forces that are pushing sales volume into a higher gear — if not quite to pre-recession levels.
Running Out of Time
One of the main factors, they say, is the simple fact that customers can’t keep putting off that big car purchase much longer.
“People have been making smarter decisions,” Sarat said. “They’re taking more time than they used to to find the right vehicle at the right price. But they certainly can’t hold off forever.”
Balise agreed. “People have been holding off, deferring that decision as much as they can, but you can only do that for so long,” he said. “If you figure the wheels came off [the economy] in mid- to late 2008, that’s been a long time that people have been putting things off.”
“Right now, the average car on the road is more than 10 years old,” Sarat added. “That average age is growing faster than ever, so I’m guessing, at this point, it’s not as much want as need. And with some of the quality cars coming out now, I don’t think people can pass it up.”
Rome pegged the average age of cars in the U.S. at closer to 12 years. “Consumers are holding out as long as they can; the average age of cars on the road is as high as it’s ever been,” he said. “Most people have no choice but to upgrade their vehicles.”
Those buyers are being more cautious with their money, he added. “We’ve seen a big boost in certified, pre-owned vehicles. Customers are finding that they don’t need to spend an extra $3,000 to $4,000 for a new car because certified, pre-owned cars come with the same warranty for less money.”
Mike Balise says many customers crave fuel efficiency, but also look for high-tech features like navigation and telematics.
Still, he said, consumers aren’t considering price alone; they also crave reliability.
“Our quality has been exceeding our Japanese competitors, and now the perception is starting to catch up with the reality,” he told BusinessWest. “What I mean by that is, the consumers feel that not only is it OK to buy a Hyundai or Kia, but it’s actually more desirable than a Nissan or Toyota.”
He noted that consumer magazines have raised their ratings of both makes, while the Hyundai Elantra was recently named North American Car of the Year by 50 automotive journalists.
Sarat also noted that car buyers are responding to reviews and research. “Ford has taken such a leap in quality and satisfaction,” he said, particularly pointing out a new engine called the EcoBoost that’s appearing in cars, trucks, and SUVs; the 2013 Escape will include one, as will the completely redesigned 2013 Fusion.
But he also mentioned another attraction for Ford buyers: the fact that the company did not take federal bailout money, as Chrysler and GM did, late in 2008. “We still get people coming in and buying a Ford today because Ford didn’t take the bailout,” he said.
As for other consumer draws, the dealers who spoke with BusinessWest agreed that fuel efficiency remains high in the minds of car buyers.
“The trend has long been toward more fuel efficiency — not necessarily hybrids, but fuel-efficient four-cylinder and six-cylinder cars,” Sarat said, noting that gas mileage is one strength of the new EcoBoost engine. “And now we’re getting fuel-efficient SUVs, so people don’t have to sacrifice seven-person seating and still get 18 to 22 miles per gallon.”
Rome agreed. “Both Hyundai and Kia have models that get 40 miles per gallon,” he said. “Gas prices are continuing to increase, and we’re finding that many people are trading in less-fuel-efficient cars and seeing savings of $100 to $200 per month in gas alone.”
Balise called fuel efficiency “a big deal,” but added that savvy buyers, especially those who spend much of their work day in their vehicle, are looking for some distinctly high-tech perks as well.
“Navigation is a big deal, the telematics. That’s becoming more important,” he told BusinessWest. “Can you dock your iPad? Does it have a USB connector? And Bluetooth is a big one; with all the legislation being contemplated with hands-free operations, that’s going to become more important.”
Fleet Afoot
It’s not just individuals and families who have been living with aging cars, Sarat said. Businesses are often in the same position.
“Fleets are getting old,” he noted. “That’s often their office; those folks rely on those vehicles. Ford has always been a huge option for businesses, whether it’s pickup trucks, dumptrucks, flatbed trucks, utility trucks, vans … all those people need to make investments in their vehicles, just like so many other investments business owners make.”
“Certainly,” Balise added, “some businesses aren’t around anymore, and a lot of other businesses have slowed down,” but there’s still plenty of opportunity to service fleet needs.
With these trends and others pointing to improved sales, Rome said he’s reinvesting in his facilities, currently upgrading his Enfield location and looking to renovate the Holyoke store in the spring, giving it a more modern, customer-friendly look — as well as keeping the service department open until midnight. He’s making these forward-looking moves, he said, with an assumption that the auto industry will continue on its positive, post-recession arc.
“We’ve set our business plan for a 16% increase this year,” he said. “If anything holds us back, it’ll be the supply of cars, but I think that will level out.”
Even though area dealers are gearing up for Presidents Day sales, Sarat said the importance of that weekend’s figures are a bit of an urban legend, and even moreso outside of New England, as other regions of the country don’t promote the February holiday nearly as much.
But locally, it does generate some excitement among dealerships, and car makers ramp up advertising, hoping to generate some strong headwinds into the rest of the year. Rome noted that Hyundai bought four 30-second spots during the Super Bowl — no small financial commitment — while Kia purchased one 60-second ad.
“Presidents Day used to have more significance just because everyone in retail is in on it now, whether it’s selling furniture or something else,” Balise said. “It used to be more of a car thing.
“But there are enhanced offers from the manufacturers during that time, so it is a good time to buy cars in general,” he added. “Inventories have pretty much recovered, and most dealers have a good selection. We’ll definitely see an uptick in business, if not like in years past.”
Whatever the weekend brings, Sarat expects it to be a springboard into a strong spring and summer on all fronts: domestic and foreign, cars and trucks.
“I think 2012 is going to be a big year,” he said. “I think, if all dealers just commit themselves to customer service and treating customers right, everyone is going to have a good year, both dealers and customers.”
Balise is equally cheered by what he sees. “I can’t imagine,” he said, “that it won’t be a better year.”
Joseph Bednar can be reached at bednar@businesswest.com
