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October 7, 2019
Cox Q3 Report Offers Hope, Headwinds
Chart Courtesy of Cox Automotive DEALER SENTIMENT: The Cox Q3 Auto Sales report offered both good news and a cautionary tale. Dealer sentiment was split among franchise and independent dealers, with new-car dealers feeling a bit more positive looking forward. By Jeffrey Bellant
Rush - Dated Material
Economists raised caution signals even as retail used sales increased and employment remains strong. A presentation of the Cox Automotive Q3 Auto Sales report in a conference call Sept. 26 provided a mixed message about the state of the industry. “It seems that all of our bets are principally on lower interest rates,” said Chief Economist Jonathan Smoke, “helping the consumer continue the spending that’s essentially what’s driving this entire economy so far this year.”
Smoke said the strongest part of the economy continues to be employment along with strong wage growth. “However, the average consumers (are) not seeing their financial conditions improve quite like they were last year,” Smoke said. The added benefit for tax reform boosted disposable income last year, he said. Smoke warned that a University of Michigan study showed a dip in consumer confidence, which often translates into slower spending on purchases like automobiles. On the auto finance side, the in-
dustry is at “historic levels” for loans and leases, Smoke said. “That’s not necessarily a good thing,” he said. A lot of that is in longer terms, which makes a consumer less likely to make another purchase in the shorter term. Numbers show a decline in subprime activity and concerns about delinquency in that segment. Buyers with super-prime credit (above 760 FICO) are seeing drops by about a half point from the beginning of the year. But subprime borrowers (under 620), rates have gone up 1.6 percent. “So far in September, what we’ve
seen for the average approved subprime loan on a new vehicle is clocking in at 18 percent APR. “That’s a really tough number, especially when you combine that with where new vehicle prices have gone,” Smoke said. Dealer sentiment overall is down, but franchise dealers view the market as stronger than used-car dealers. Smoke said franchisees are viewing used-car sales as strong, while independents are viewing those sales as weak, with tighter consumer credit. Continued on page 10