It looks great that the Seasonally Adjusted Annual Rate (SAAR) is sticking around 14.5 million 8 months into 2012. Sales are up 20 percent year-over-year. But you need to look at the footnotes to see if there is confidence in the numbers, or if there is reason for worry.
I looked at the sales numbers and the information Truecar.com put together and saw some real strength in consumer confidence. Truecar has worked with over 4,600 car dealers, since 2005, long enough to gather year-over-year data.
Year-over-year has seen an increase in the average price of a vehicle. Truecar collated the numbers that show the industry average price for a new car is $30,274. In 2011, a year earlier, the average price for a new car was $29,846, an increase of 1.4 percent.
One of the reasons sales could be on the upward swing is financing is becoming available. Reid Bigland, President and CEO of the Dodge brand, talked about financing at a luncheon, “now that the credit market is loosen and function a little more normally the subprime (and prime) buyer is able to get financing, where they’ve been locked out of the marketplace up until 12-18 months ago. Now they’re returning and it’s alleviating some of that pent-up demand in the marketplace today.”
The next image from Truecar shows that incentives, for the most part, are going down. You can see that Volkswagen increased their incentive spending by almost 40 percent. Conversely, Hyundai and Toyota’s incentives decreased by double digits. At the Hyundai Santa Fe event I talked to Hyundai’s President and CEO, John Krafcik. Krafcik is struggling with a problem other car companies would love to have, lots of demand, very little supply. The average days on the lot for Hyundai is 22 days. Some of their cars are down to 12 days on the lot!
At a luncheon in Michigan Sergio Marchionne, CEO of Fiat and Chrysler, talked about incentives, “a lot of it depends on the age of the product portfolio. As you see our new cars come out you will see our numbers (incentives) shrink.”
Bigland picked up the conversation after Marchionne saying that looking at just incentives without looking at transaction prices. He is right.
Lest you think the actual dollar figure says everything, Truecar broke down the industry average of incentive on a car sale. Take Volkswagen for example, their incentive went up almost 40 percent, but they are still below the average amount of an industry incentive of 8.1 percent. And as a whole, the car industry incentives-to-sales went down 6/10ths of a percent year-over-year. If auto makers keep their supply inline with demand you will continue to see incentives go down.
The Dodge Dart does not have an incentive on it, yet Chrysler has one of the highest incentive-to-sales and dollar incentives in the business. Why? Because they have old inventory they need to get rid of so that they can bring out the new 2013 models. Marchionne also pointed out that the reason you need to look at incentives-to-sale price is because financing has incentives built into it as well. If you can offer zero percent down, that is an incentive that may keep the price high, without offering a cash incentive.
The auto industry is not only keeping pace with the SAAR of 14.5 million for 2012, but the price of vehicles are going up, and incentives on a whole are going down. This speaks well for the automobile business and the confidence of the economy, as long as the car companies stay prudent.