Auto Industry Poised for Another Solid Year of Sales
Last year was nearly one for the record books when it came to new-car sales, with more than 17 million transactions recorded nationwide. There were a host of factors that contributed to that stellar performance, from attractive interest rates to low gas prices to an aging fleet of vehicles on the road. As the new year kicks into second gear, little has changed, playing-conditions-wise, so dealers are expecting more high-octane results.
Jennifer Cernak says there’s an intriguing story behind the 1922 Buick, model 22 37, parked in the showroom of the dealership her grandfather, Samuel, opened on Route 10 in Easthampton in 1940.
It turns out the car was a trade-in, a key piece in a deal the elder Cernak clinched in 1962.
“It wasn’t worth a lot of money, but my grandfather really wanted the antique, so he took it in trade,” she explained, adding that it’s been front and center, in one respect or another, ever since.
It’s been driven in various parades over the years, for example, and it’s been put on display at several classic-car shows across the region. But while it still runs fine, it hasn’t been out of the showroom much lately, Cernak told BusinessWest, because it doesn’t easily negotiate the ramp used to bring vehicles in and out of that room.
Go HERE for a PDF chart of area auto dealers
But it might soon have to make that trek and lose the spot it has owned for years, she went on, because Buick has a number of new models coming out over the next few months, and showroom floor space will be at a premium, to say the least.
“We’re already thinking about what to do,” said Cernak, adding that, while the antique holds a special place in this three-generation family business, it may have to go — somewhere — to make room for the Cascada and the Envision.
The former is a convertible, the first one Buick has offered in perhaps 20 years, and it’s due to arrive later this month. The latter, expected by summer, is a mid-sized SUV, smaller than the company’s Enclave and bigger than its Encore. Both are expected to be real assets in the carmaker’s ongoing efforts to convince the buying public that Buick isn’t just a model for your uncle or grandfather.
“There’s a lot of buzz about these cars, and we’re really excited to have a lot of new models,” Cernak explained, adding that the new nameplates are just one of many reasons why she believes the robust performance of 2015 — witnessed across the auto industry — will carry over into this new year.
And she’s not alone in that assessment.
Bill Peffer, COO at West Springfield-based Balise Motor Sales, told BusinessWest that industry analysts are predicting another solid year for sales, perhaps even something approaching the 17.4 million new cars sold in 2015, a total just shy of the record set some 15 years ago.
The reasons for such projections include everything from attractive interest rates (0% is still available, although harder to find), to low gas prices; from a still-strong economy to lingering, pent-up demand in the form of many older cars still on the road that need to be replaced; from decent weather (knock on wood) to an abundance of intriguing, well-made products.
“The stars are certainly aligned,” Peffer said of the current auto-sales sky, adding that, while this is a buyer’s market in every sense of that phrase, it’s an environment in which many constituencies benefit.
This includes consumers, dealers, and auto makers, who are, he said, taking the profits from the surge in sales and plowing them back into research and development, which will in turn lead to innovations and new products, which will continue the current cycle and fuel more growth.
“Forecasts we’re getting from various sources show growth this year,” he told BusinessWest. “Gas prices are lower, consumers have access to credit and low rates, we have a fairly robust economy, we’re seeing demand for vehicles, and there’s adequate supply. It all adds up to a very positive environment for sales.”
For this issue and its focus on auto sales, BusinessWest talked with several area dealers about what to expect in the months to come, and why all the experts are expecting another year in the fast lane for this industry.
Firing up the Grille
Don Pion calls it “old iron.”
That’s an industry term of sorts that Pion, second-generation president of Bob Pion Buick GMC in Chicopee, summoned to describe the volume of elderly vehicles still on the road.
There are many of them, he said, noting that there are a number of contributing factors to this phenomenon, including better quality, which prolongs a car’s life, and several years of lingering doubts about the economy and the direction in which it was headed, which prompted many consumers to get another year — or two, or three, or four — out of their vehicles.
“The age of the fleet, the cars on the road today, remains at an all-time high,” he said. “It’s almost 12 years, according to the reports I’ve heard, which is pretty remarkable given the number of cars that were sold last year.”
This old iron — and ‘old’ is a relative term, certainly — is one of those aforementioned stars now in alignment and a contributing factor to solid projections for the year ahead, said those we spoke with.
Indeed, the more elderly vehicles — which have kept service departments jammed, providing a different source of revenue — are finally being traded in, spawning sales of new and used cars. Meanwhile, a large amount of younger old iron — especially a huge number of cars coming off leases after 36, 24, or even 12 months — is creating attractive inventory for the used-car market, where profit margins are usually better than those for cars right out of the box.
It’s part of an intriguing cycle, with a number of moving parts, but sales of the new models definitely set the tone.
“The new-car side of the business is kind of the catalyst that makes everything go,” said Pion. “It keeps everything running.”
Peffer agreed, and said that current trends collectively comprise the best news for the industry — the fact that there is plenty of fuel to keep this fire burning through the year and probably well beyond.
Indeed, while more than 50 million cars were sold in 2015 — those 17 million new models and north of 40 million used cars — there is still plenty of demand for both.
“There is a lot of activity out there, and as dealers we sell new and used vehicles,” he explained. “When you take a used vehicle in, you sell a new vehicle, so that helps new-car sales. You recondition and then sell the used car, creating another transaction, creating more service department work, creating another customer that comes back for repeat business and service.”
Meanwhile, in a departure from recent years for some models, there is ample supply of new cars and trucks, although dealers could always use more.
“For many years following the recession [in 2008], you had a situation where there was maybe more demand than there was supply,” said Peffer, adding that this scenario was true with some carmakers more than others. “Most manufacturers, though, have caught up, and will, or already have, satisfied demand through additional production.”
As for the nature of that demand he and others mentioned, it comes in a number of flavors, and this is yet another reason for the rosy outlook for the industry.
Much of the focus, of course, is on the huge and seemingly insatiable appetite for SUVs and trucks, and especially the latter. Peffer said these vehicles have always been popular, and become even more so when gas prices fall below $3 a gallon. When they’re below $2, like they are now, it’s hard to keep trucks on the lot, and soaring truck sales, he noted, create a rising tide that, as the saying goes, lifts all boats.
“Low fuel prices generally move people into bigger vehicles, heavier vehicles — truck-based vehicles, so trucks are really hot right now,” he explained, putting additional accent on ‘really.’ “And when people buy more trucks, that’s good for the manufacturers — they take that money and put it into R&D, and that yields new products. The truck business is profitable for the manufacturers, and it’s profitable for dealers as well.”
But while trucks are white hot, so, too, are SUVs, a class of vehicle that has seen its appeal spread well beyond soccer moms.
“They’re attracting people of all ages, including a growing number of older individuals because they’re much easier to get in and out of,” said Rob Pion, Don’s son and a member of the third generation of management at the dealership. “There’s interest across the board.”
So much so that there is now demand for a host of different-sized and variously appointed SUVs to meet the wide variety of needs within that growing market. And that’s why Cernak is so enthusiastic about the Envision.
“Some people find the Enclave too big and the Encore too small,” she explained matter-of-factly, adding that the Goldilocks factor is prompting all makers, including Buick, to respond accordingly. “We really needed a mid-sized SUV, and now we’re getting one.”
And with gas prices low and expected to stay that way for the near future, sales of these vehicles should remain brisk, said the Pions, both noting that the near certainty that these prices won’t last isn’t nearly enough to deter most all buyers of these larger vehicles.
Setting a President
Don Pion’s memories of life in the auto business stretch back more than a half-century, to when his father was a salesperson at the old Boulier Chevrolet in Springfield and he would accompany him to the lot.
He recalls the fall season, when the new models would roll in and the dealership would cover the showroom windows with brown paper to build suspense and draw customers in.
He also remembers Presidents Day and how it was a much bigger deal decades ago, when red, white, and blue balloons would often populate the showroom, dealers would give away cherry pies with sales, and area newspapers would be crammed with full-page ads announcing deals.
Most all of that is gone now, especially the newspaper ads, he said with a hint of lament in his voice, adding that the Presidents Day sales, always a bigger event in the Northeast than other parts of the country for some reason, were designed to break the winter doldrums and give people a reason to get into the showrooms.
Such sentiment still exists, and some dealers continue to mark the holiday with special sales, he told BusinessWest, adding quickly that promotions are now a near-constant in this business, with new incentives on a monthly or quarterly basis. As for February, in many respects it’s just another month, although sometimes a challenging one when winter hits with full fury, as it did in 2015.
This year, of course, it’s expected to be a solid month, as all those aforementioned stars continue to shine an optimistic light on the industry.
“Everything is very favorable right now,” said Don Pion as he surveyed the scene. “All the signs are positive.”
There are always threats to this sector, though, and things could change in a hurry. But most potential stumbling blocks, such as the stock market’s dreadful start to the year, are minor or temporary in nature, said Peffer.
Still, while most of the arrows are pointing up for this industry, there are challenges in various forms, starting with heightened competition in the form of quality vehicles carrying seemingly every nameplate.
“Where quality was once a market differentiator decades ago, now it’s cost of entry,” said Peffer. “I can’t think of a brand that doesn’t have really good quality.
“There are so many new-product offerings on the market right now that are full of technology, full of safety features, full of performance and styling,” he went on, adding that all this competition is in many ways a positive more than a negative. “All this really piques a customer’s interest; it’s a very good time to be in the market for a new or near-new vehicle.”
Pion agreed. “In the age of consumerism that we have now, bad products don’t survive in any segment, whether we’re talking about automobiles or whatever,” he explained. “You have to build a good product because anyone can go online and read the reviews — and people do that before they buy.”
For the Buick dealers, meanwhile, there’s the almost age-old (no pun intended) challenge of convincing younger audiences that this brand is not just for their father or grandfather.
Rob Pion recalls a recent episode involving a younger individual who test-drove one of the Buick models, liked it, but then offered, ‘I’m not old enough to drive a Buick,’ or words to that effect. And that’s a fairly common refrain.
“We battle that all that time,” said the younger Pion. “If I could just blindfold people until they got in the car and took it for a test drive, I know I could sell more people on these vehicles.”
Time will tell whether that 1922 Buick retains its long-held parking space at the Cernak dealership. But at the moment, it looks like the family may well have to find a new home for the antique.
The Cascada will be arriving in a few weeks, and the Envision not long after that. In the meantime, the existing models, including more traditional offerings like the Lacrosse and the Verano, are in solid demand.
Add it all up, and the focus clearly shifts to the present and future, not the past.
And to the stars, which, as Peffer and other dealers said, are certainly aligned.
George O’Brien can be reached at [email protected]