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7/26/11
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August 1, 201 1
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Trucks Receive Demand Boost, But For How Long? By Ted Craig
Rush - Dated Material
The outlook for the truck market has improved as gas prices drop, but prospects are limited. A couple of sources reported that consumer interest in trucks increased last month and sales numbers indicate that’s more than talk. TrueCar’s TrueMPG measure fell in June, the second month-over-month decrease. TrueMPG gages the fuel efficiency of all vehicles purchased in a month. It doesn’t take much to change buying patterns. Gas prices remain almost a dollar higher than a year ago despite these small drops. And they started heading up again toward the end of July. “It’s amazing how the American consumer makes long-term decisions based on short-term events,” said Openlane Inc. economist Nagi Palle. Consumers aren’t all that short-sighted, though.
TrueCar analyst Jesse Toprak said some of the truck sales lost when gas prices rise never return. “There’s a good portion of customers who are choosing small cars on a permanent basis because they have no faith in gas prices,” Toprak said. Some buyers never stop buying trucks either. Ed White, owner of White Auto Sales in Rensselaer, Ind., sells about 35 cars and 15 SUVs a month. “I haven’t seen any change in buying patterns,” White said. Another TrueCar study showed there’s some pent-up demand for SUVs. The buying preferences of people in the 30s and 40s ranked Land Rover and Jeep among the most popular brands. Pick-up trucks are another story. They depend on construction starts even more than gas prices. There has been a increase in construction lately, but it remains slow. There is more truck inventory than demand as a result, Palle said. “There’s going to be some tension built up around trucks,” he said. The opposite is true for small cars. The manufacturers only started to focus on producing more small units during the last fuel spike in 2008. Auto sales tanked right after that and so there’s a shortage of these fuel-efficent vehicles on the used market, Toprak said.
Wholesale Inventory Will Stay Tight The wholesale market has settled down. Openlane Inc. economist Nagi Palle finds the market at mid-year one of less demand, but still low supply. Overall U.S. auction prices increased 1 percentage point in June, according to Openlane, but ended 2 percentage points above June 2010. The company’s numbers are based on online sales, many of which are higher-end vehicles. Palle sees only a slight increase in prices going forward as the economy hits a soft patch. He does not foresee a bubble busting, however. Prices have risen to historic highs, but only a little more than market fundamentals would expect. “There was a little frothing,” Palle said. Palle expects supply to remain down over the next three quarters due to a lack of new-car sales
and leasing in the past three years. “A lot of the volume isn’t coming back until you get fundamental growth,” he said. Demand won’t increase much either. Consumers still suffer from high unemployment and low wage growth. Palle said off-rental units should fill some of the inventory gap in the fall, but nowhere near all of it. Ever more dealers buy units online, he said. The conversation between dealers and Openlane has changed from why buy online to how to buy more online. Dealers need to consider all sources of inventory these days. Palle said some dealers have only bought off-lease vehicles in the past, but now they need to look at the dealer consignment sales.
IN THIS ISSUE • California IADA director looks to grow the association. – Page 3
• The proposed director of the CFPB brings experience. – Page 8
• A boyhood pact turns into a successful store – Page 5
• Vendors show off the latest offerings in finance. – Page 18
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