March 2016, Auto Dealer Today - WebXclusive
The Honda Civic was the No. 1 leased vehicle in the U.S. last year, a sure sign that leasing’s popularity is no longer limited to the highline segment. Courtesy American Honda Motor Co.
The U.S. automotive industry had its best year in a long time in 2015. According to the National Automobile Dealers Association (NADA), more cars were sold in 2015 than ever before — a staggering 17.5 million cars. And NADA expects another 17.7 million this year. That is exciting news for auto dealers across the United States.
But there is more to expect from the years ahead than just sales. Some automotive industry trends continuing to grow while others are shifting. See below for an outline of all the important trends that dealers need to be aware of, especially when starting a new dealership!
New Sales Grow While Used Sales Drop Slightly.
One of the reasons that new car sales are expected to grow even further this year is that the prices for used cars have grown. As the supply of used cars has diminished, this has raised their costs, since consumers have begun keeping their used cars for longer periods of time — 63.9 months on average.
This is both due to them still recovering from the recession but also because of the improving quality of cars, leading owners to keep their vehicles for longer periods of time. But the news is not all bad for used-car dealers, because certified pre-owned (CPO) vehicles are expected to account for even more sales in the coming year, according to Edmunds.com, effectively raising the total percentage of used-car sales.
The growth in sales also signals a more competitive market for auto dealers who will be called to offer better service to their clients and further prove their trustworthiness and legitimacy. From the basics such as obtaining the relevant auto dealer bond to reaching out in new and innovative ways, auto dealers can look forward to a year offering many possibilities.
Leasing Is Growing.
Last year, leases accounted for up to 29% of all new car sales. January 2016 had the highest lease-penetration ever recorded with about 31% of all transactions being leases.
Up from a meager 13.5% in 2009, leases are expected to continue growing and what's noteworthy is that leases are increasingly becoming more mainstream. Remember when leasing was a purchasing method mostly reserved for luxury models? The most leased car model in 2015 was the Honda Civic.
Trucks and SUVs Are Outperforming Car Sales.
Trucks and SUVs continue to outperform car sales. In January, light trucks outsold cars for the 29th month in a row. Consistently falling gas prices and the improving housing market have made light trucks appealing again. Dealers can therefore expect a majority of their sales in 2016 to be from SUVs.
At the same time, this trend is somewhat at odds with the corporate average fuel economy (CAFE) regulations that are meant to encourage the development of more efficient engines and decrease overall gasoline consumption. Instead, average fuel efficiency of new vehicles sold in 2015 actually declined, moving the industry further away from the goal set by the administration. This, in turn, may eventually reverse the trend as U.S. manufacturers are consistently behind in developing cars that can match those of their European and Asian counterparts in terms of efficiency.
Ride Sharing and Autonomous Vehicles Will Increase in Popularity.
According to expense management company Certify, last year, 41% of car rental rides taken were with Uber, 39% with car rentals and only 20% with taxis. Ride-hailing service Lyft accounted for a small percentage of the total rides, yet experienced a 700% increase compared to 2014.
And in the beginning of January, General Motors announced that it would invest $500 million in Lyft, making that company GM’s preferred provider of vehicles for short-term use. And by the end of January, GM had also announced that they would be starting their own car-sharing service called Maven in the hopes of getting ahead in the self-driving car industry.
Of course this does not mean that autonomous ride-hailing services will be becoming the norm anytime soon, especially with some states like California proposing bans on autonomous vehicles. Nor are the implications for car dealers entirely clear at this point, yet the trend is here to stay, with so many big companies investing in ride-hailing services and autonomous cars.
FTC Hinting at Changing Automotive Marketplace Regulations
The Federal Trade Commission (FTC) also made some news last month when they hinted at the possibility that a change in automobile marketplace regulations could occur. In January, an Auto Distribution workshop in Washington, D.C., gathered dealers, manufacturers, startups and even professors from a number of universities to discuss the current status of marketplace regulations.
What was discussed was a change in dealership laws which would open up the possibility to OEMs to sell their cars to buyers directly — in other words, introducing changes to overreaching laws and regulations. This discussion is yet to become official and expand beyond a few states where mostly Tesla has been raising such questions, yet it's potential for car dealers may be far-reaching. While it does not seem like it will threaten the current marketplace landscape, it may eventually come to challenge the way dealers do business.
More Automotive Industry Trends?
As the industry shifts gears and scores record numbers month after month, new trends are quick to emerge. Which ones do you think should also be covered? As an auto dealer what else do you think is important for you and your colleagues this year? Leave us a comment. We want to know what you feel is important!
Vic Lance is the founder and president of Lance Surety Bond Associates and an expert in helping auto dealers get licensed and bonded. VLance@AutoDealerMonthly.com