LAS VEGAS, Nevada - More than 300 leaders in the used car business gathered in early November for the annual National Remarketing Conference (NRC), held this year at the Red Rock Resort/Casino, on the outskirts of Las Vegas. Organized and hosted by Ron Smith, CEO and publisher of Auto Remarketing magazine, and his enthusiastic staff, the conference began at mid-day on Monday and lasted through Wednesday morning. But more was in store for attendees who were able to stay longer. Wednesday afternoon brought the first meeting of the newly formed Pre-Owned Automobile Dealers Alliance.
Although the conference focuses on people involved in varied aspects of the used car business, Smith once again cordially invited Tirekicking Today to attend as a media representative. In fact, we'd been present at the very first National Remarketing Conference, held in Phoenix 10 years earlier.
Analysis of the used car market began with some observations on the American economy as a whole, by Tom Kontos, a highly-regarded expert. The recession that began at the end of 2007 appears to have eased, said Kontos, who serves as executive vice-president of customer strategies and analytics at ADESA (a major auction chain). Most analysts expect slow growth, though especially without government stimulus - notably the Cash for Clunkers program that emerged in mid-2009. "Will American consumers come out and buy a car, if they're not getting stimulus money from Uncle Sam?" Kontos inquired. Automobile dealers must adopt a wait-and-see attitude "as Americans consider whether they want to downsize" their vehicle purchases.
What happened during 2008 and into 2009 was the "worst recession since the Great Depression," Kontos advises, though the impact has varied by state and region. Unemployment rates may be nearing their peak as job losses slow. But it's still a weak labor market out there, which will slow recovery.
Some growth in consumer spending has emerged in the fall of 2009. Investment was rising since January, but then dropped in third quarter. The ISM manufacturing index is now above 55, which indicates expansion.
Savings rates on the part of consumers are likely rising more as a result of government stimulus and unavailable credit than because of sudden urges to put money in the bank rather than spend. As credit conditions rise, Kontos suggests that we should see more spending and less saving.
Fuel prices have been rising, but aren't likely to return to prior levels - particularly the high point in late 2008. During the period of high fuel prices, America saw a significant decline in number of miles driven annually. Now that gasoline is more reasonable, that trend appears to have reversed.
Used vehicle sales totaled 36 million in 2008, according to Kontos (25 million of them retailed by franchised new-car or independent used-car dealers). Wholesale auctions accounted for sales of 9 million vehicles. Kontos also noted that some 14 million vehicles were "terminated" (not re-registered and therefore no longer officially active), in addition to the number that were scrapped. All told, 250 million vehicles were operating in 2008.
Used-vehicle prices bottomed out in the winter of 2008-09, though pricing patterns "eventually reverse," Kontos said. Large trucks are now selling for something closer to the "normal" figures they used to bring, after a period of shockingly low truck prices a year or so ago. "Used car prices are still relatively low," Kontos advised, "compared to new-car prices."
Kontos noted a big decline in lease originations lately, though he attributes it more to the dramatic drop in new-vehicle sales during 2009 than to manufacturers dropping out of the leasing business. Delinquency rates remain near all-time highs, which will keep the number of repossessions high as well - though Kontos believes 2009 may be the peak year for repos.
At a panel discussion later in the conference, Richard Howse, director of remarketing and auctions at Volkswagen Credit, reported seeing a lot more repos as a percent of total sales. Close to 40-45 percent of vehicles going through the wholesale auctions were repossessions, Howse told his audience.
Matt Traylen, senior director of economics and portfolio services for Automobile Lease Guide (ALG), expanded upon the state of the economy at a later session on residual values of used vehicles. The 2007-08 period saw a huge decline in consumer outlook, Traylen stated. "We're pretty unhappy at the moment," but there has been a recent climb upward in consumer attitudes.
Wage growth is way down now, accompanied by "furloughs across the board." Unemployment will reach 10 percent next year, but Traylen believes wages are likely to start growing again in 2010.
Global gas consumption is another issue that affects vehicle sales. Traylen advised that the U.S. consumes 9,000 barrels of oil per day. All of Europe uses 3,000 barrels, while China is using more than one thousand. China, on the other hand, shows a very high rate of growth in fuel usage. In 10-15 years, Traylen believes China will consume as much as Europe.
Please check these additional reports from the National Remarketing Conference:
Certified Pre-Owned Vehicles
Used Car Valuations
Trends in Used Vehicles
Details on the new Pre-Owned Automobile Dealers Alliance
Attention Editors: The complete report from the National Remarketing Conference is available now for your publication. Please contact us at JF@tirekick.com for details.