Picking Up Speed
Auto Dealers Expect Sales to Accelerate in 2014
By MICHAEL REARDON
With the recession in the rear-view mirror, the automobile industry is poised for another successful year fueled by a stronger economy and high demand.
While sales and leasing were strong last year, 2014 is predicted to be even more robust, according to local auto dealers and industry analysts. The good news for buyers is that they are still clearly in the driver’s seat.
“This will be a great year to be a consumer,” Mike Balise, vice president of Balise Auto Group, told BusinessWest. “There’s a real battle for market share. The price of cars will go down this year. The interest rate is the only area that will make things more expensive, but probably not this year.”
According to Don Pion, owner of Bob Pion Buick GMC in Chicopee, January is traditionally a slow month at his dealership because of the wintry weather, holiday credit-card bills arriving in the mail, and people curtailing their shopping. This year was different, though.
“Our numbers in January of this year were substantially ahead of January 2013,” Pion said. “From everything I see, 2014 will be a very good year for the auto industry. Last year was the first real strong year we had in a number of years; it was a good year for the auto industry in general, and 2014 will be better.”
Indeed, industry analysts J.D. Power’s Power Information Network and LMC Automotive teamed up on a study which predicted that new-vehicle sales would rise 3% in January 2014. The joint study stated that consumers purchased 847,000 new vehicles last month, the most January sales since 2004. According to the J.D. Power and LMC Automotive forecast, consumers are spending an average of $29,500 on new cars and trucks, approximately $300 more per vehicle compared with the same time period last year.
Based on January sales, analysts believe the coming year will be strong. LMC Automotive is predicting 16.2 million light-vehicle units will be sold in the U.S. in 2014, an increase of 600,000 vehicles over 2013, and the most overall since 2007. More than 85 million vehicles were sold worldwide last year, with Toyota taking the lead.
“There’s a little bit of a pent-up demand,” said Rob Pion, Don’s son and the dealership’s service manager. “For awhile, people were not buying vehicles. They were waiting for the economy to turn around. Sales this year will be somewhat based on need.”
Chip Gengras, president of Gengras Motor Cars, is so confident in the strength of the auto industry that he is setting a sales-increase goal at his BMW of West Springfield dealership higher than the one set by BMW of North America.
“BMW sold 309,000 units in the United States last year,” Gengras said. “The U.S sales increase goal for this year is 10%. Our goal is a 15% increase in sales.”
This is quite a contrast to where Gengras started when he bought BMW of West Springfield in August 2008, two weeks before the banking collapse ushered in the economy-crushing Great Recession.
“The recession impacted every car buyer and dealer,” he said. “People who bought BMWs stopped. People held onto their cars longer.”
Analysts predict new-car sales will rise 5% in 2014, but Balise believes sales in the Northeast will go up about 1% or 2%.
“North America is still the world’s biggest new-car market,” he said. “You will see growth this year.”
On Jan. 12, Jim Lentz, CEO of Toyota North America, told the Society of Automotive Analysts Automotive Outlook Conference in Detroit that the industry will begin a “leveling off” period in sales, but an increasingly stronger economy will make 2014 another great year for the auto industry.
Buy the Buy
Balise, Don Pion, and Gengras are all owners of long-established area car dealerships and have weathered many ups and downs. Balise’s grandfather, Paul, started the family’s first dealership in 1919 in Hatfield. The business then moved to Front Street in Chicopee, where it was called Balise Motor Sales. Balise Chevrolet opened in Springfield, across the street from its current location, in the 1930s.
Today, Balise Auto Group sells a variety of domestic and foreign vehicles at more than 20 locations in Massachusetts and Rhode Island, and employs 1,050 people.
Today, Gengras Motor Cars is operated by Chip and his brother Jonathan. The company was launched in Hartford as a Lincoln dealership in 1937 by their grandfather, E. Clayton Gengras. E. Clayton (Skip) Gengras Jr. took over the business in the early 1970s.
The company currently boasts seven dealerships that sell a variety of domestic and foreign vehicles, and has 350 employees.
All three of the local auto dealers are confident that used-car sales are also slated to remain strong this year, although it is harder to find quality pre-owned vehicles. Don Pion said he has seen significant growth in the sales of certified used cars. Certified used-car features such as maintenance packages and extended warranties offer the customer a level of comfort that the vehicle is of good quality and will be well taken care of.
“It’s a nice product to offer customers with a lot of protection for them,” Pion said. The challenge with used cars is availability. Nice used cars are at a premium now.”
Gengras agreed, saying that reconditioned, certified vehicles that meet the manufacturers’ standards will be attractive to buyers looking for quality at lower prices.
However, while “leasing will stay hot and is a great value,” Balise said, finding an inexpensive used car “is almost impossible.”
Leasing became popular during the recession when people who would normally buy a new car instead opted to lease for a lower price. This trend is also expected to remain popular this year, as leasing options continue to remain affordable.
These days, customers can get a one-price lease package that not only includes the vehicle, but also features like OnStar and maintenance and service. Because leasing is affordable and is for a finite period of time, it is a good way for dealers to showcase an automobile and for consumers to drive something out of the ordinary.
“Leasing entices people to try the product,” said Pion, noting that Bob Pion Buick GMC averages about 50 units of sales and leases per month, and roughly half of those are leased.
Gengras said the numbers are about the same at his dealership.
“It gives you the opportunity to take advantage of cars that maintain their value,” he said. “You’re getting more vehicle for less money.”
Several trends have emerged in the auto industry over the past few years, and many will continue in 2014. Among them is a movement toward more and more people going online, not just to research different cars they might be interested in purchasing, but to visit a dealership website and select a vehicle, figure out payments, choose accessories, and more. “Customers have more power than ever to make these choices,” Balise said.
The car-buying experience is going mobile in another way, as customers are increasingly using their smartphones to do their shopping.
“It used to be people used their desktop computers; now it’s more mobile,” Gengras said. “Texting is starting to become prevalent; it’s the easiest way to get in touch with customers. But I can’t imagine a day when people won’t come into the showroom. Buying a car is such an emotional and significant purchase. People want to come in and feel the acceleration, feel the leather, hear the stereo.”
Another trend Pion has witnessed is customers who are willing to move to a smaller vehicle than in the past, but are not willing to sacrifice luxury. Manufacturers have responded.
“Over the past two or three years, things have been trending that way,” he explained. “You see a high level of content and luxury in smaller packages today.”
Fuel economy is an ongoing priority that has become deeply rooted in the car-buying experience. While hybrid vehicles have become very popular, electric cars have not caught on.
“Electric cars are less popular because there are certain limitations to those vehicles that technology has not solved yet,” Balise said. “Performance is great, but length of travel and how long it takes to charge electric vehicles are an issue.”
Active safety features are constantly improving, as manufacturers are now including items that stop the vehicle when it is in danger of crashing into the car in front of it, or side-hazard-monitoring systems that lets the driver know when a vehicle is in his blind spot.
And customer service has become a major selling point for car dealers over the past few years. Customers have myriad ways of finding information about vehicles, so auto dealers must offer them a great experience when they come through the door, from attractive showrooms that offer amenities like wi-fi to extended hours for sales and service departments, to servicing cars quickly.
An example is BMW Genius, a program that includes highly informed client advisors that provide information about the products in a no-pressure way, especially high-tech features, Gengras said.
“We want to be friendly, efficient, and informative. We’re respectful of people’s time. We’re customizing the experience around what the customers want more today than ever before.”
Since vehicles are much more sophisticated these days, Balise noted, it is incumbent on dealers to make sure their employees in all departments are highly trained and up to date on the latest technology.
In the end, it all comes down to the quality of the cars in the showroom or on the lot, said those we spoke with. In this highly competitive environment, dealers cannot lure customers onto their lots and close a deal unless their manufacturers produce highly desirable vehicles.
“The most important thing is the product; the second-most important thing is customer service,” Pion said.
With those two elements of the equation standard, dealers are expecting 2014 to be another banner year.