CNW: Number of First-Time Used/New Buyers Hits Record Low
By Joe Overby, Staff Writer June 22, 2009
BANDON, Ore. — In the first five months of the year, the proportion of first-time buyers in the auto marketplace has eroded significantly, according to CNW Research. In fact, through May, this group posted the lowest share of sales in the used- and new-vehicle markets in the history of CNW’s analysis of this data. Specifically, CNW estimates that less than a third (32 percent) of used-vehicle purchases in 2009 will be from first-time buyers, down from the more than 40-percent levels from 2002-2004 and in 2007. Meanwhile, only 18 percent of new-car sales will be from first-time buyers this year, CNW projects. During the 1990s, the average was 26 percent. CNW president Art Spinella suggested that this decline in first-time buyers — which is reflective of both a troubled economy and declining demand among younger shoppers — is problematic not only in the short term, but long term, as well. “Buying a new or used vehicle becomes habitual when started early in a consumer’s employment life,” he explained. “Losing that young first-time buyer requires added marketing dollars to draw a larger share of existing owners. “That’s also problematic, especially related to frequent-buying boomers who were hit hard by the stock market contraction,” Spinella added. “The saying ‘time heals all wounds’ is still in play, however, and as consumer confidence continues to rise so will desire for vehicles.” Used Prices Continue Year-over-Year Growth Moving on, CNW noted that used-vehicle prices gained some ground in the first part of June, as transaction prices climbed year-over-year for both franchised and independent dealers. Specifically, June used-car prices for franchise stores were up 4.95 percent from a year ago, while independents saw a 0.9-percent hike. Moreover, analysts expect than June’s used-car sales are likely to come in at about 4.5 million units, which would be the first “significant” year-over-year increase in 2009. CNW attributed this surge to pent-up demand from February and March. According to the data, 102,500 used-car shoppers put off making purchases in February for an average of 3.3 months, and 119,000 did the same in March, with an average delay of 3.1 months. “While pent-up demand continues to run ahead of last year, the rate of difference has slowed. The 106,400 estimated postponers in May of ‘09 is 128 percent of May ’08,” Spinella explained. “This is the smallest difference of the year. “The average anticipated delay in a used acquisition is barely over three months, half of the delay reported a year ago,” he continued. “Equally important, 92 percent of those who dropped out of the market say they still plan to buy a vehicle within a year.” Independents’ Numbers Continue Growth Continuing on to discuss other used-vehicle news, Spinella also noted that the number of independent stores continues to climb. In May, the dealer count jumped to 37,967 stores, up 143 locations from April and marking the second straight month of growth. That said, CNW called the survival rate for these stores “questionable,” because many of these facilities don’t have enough access to funding and haven’t made enough connections with local lenders that will finance used-car purchase or offer floor planning. “Most likely to survive: those with roots in the new-car business who lost their franchise and are waiting to acquire a replacement brand,” Spinella suggested. Cash for Clunkers Next, he also offered his perspective on the Cash for Clunkers program, which recently gained approval from both houses of Congress and is widely expected to be signed into law soon by President Obama. “Cash for Clunkers, as of this writing, does not include used vehicles, something the pre-owned industry pushed hard for,” Spinella shared. “The estimated 250,000 new-vehicle sales possibly generated by (the bill) represents a loss of inventory for used-car dealers, especially independents and buy-here, pay-here. “Don’t expect prices of used vehicles to climb on this smaller inventory, though,” he added. “Used-car pricing is linked directly to new-car transaction prices which are flat at best.” Used Markets Vary Throughout U.S. Moving on, CNW provided analysis on four used-vehicle markets in different corners of the country: Los Angeles, New Orleans, New York and Phoenix. Beginning with L.A., Spinella indicated that it appears to be recovering from “used-car sales purgatory.” May sales climbed 3.48 percent from 2008, and the area’s share of the entire U.S. used-vehicle market jumped 2 percent. Franchise dealers in Los Angeles saw their sales incline roughly 10.1 percent from 2008, while independents improved 0.51 percent. Casual unit sales fell 1.39 percent. “Los Angeles’ increase in sales versus a year ago reflects a growing number of potential new-car buyers jumping into a used vehicle,” Spinella pointed out. Down in New Orleans, the used market improved 19.49 percent year-over-year in May, and its share increased almost 18 percent. Sales for franchise stores moved ahead 33.59 percent and independent dealers reported a 27.61-percent gain in sales. Casual sales dipped by 3.25 percent. “In the New Orleans area, the story is one of finally shaking off the economic collapse caused by Hurricane Katrina, with a growing percentage of the population working and needing used vehicles,” Spinella noted. In the Big Apple, used-car sales dropped 4.23 percent, and New York’s share of the market declined 5.61 percent. Although independent dealerships showed a 7.23-percent improvement in used sales, franchise stores were relatively static (down 0.08 percent) and casual sales dropped 26.21 percent. “And while New York lags somewhat behind the total U.S., suffering from major Wall Street issues, Phoenix appears to have taken New Orleans’ seat at the purgatory table,” Spinella pointed out. More specifically, Phoenix’s used sales softened 22.61 percent and its share of the used market fell 23.72 percent. Franchised stores dipped 18.51 percent in Phoenix and independents’ May sales were off 20.21 percent. “While national numbers are telling, looking at the used market by DMA reveals the nature of sales more clearly,” Spinella explained. “Generally, for example, the data clearly suggests that while Phoenix is suffering from continued economic turmoil especially in the housing market, New Orleans is making tremendous gains as a place to sell pre-owned vehicles,” he continued. “And for all of the negative talk about California’s market collapse, Los Angeles is showing significant improvements versus 2008.” Premium on CPO Units Improves Next up, CNW analyzed the certified pre-owned market, and noted that the premium consumers are willing to pay for CPO jumped from $1,726 in April to $1,751 in May. Meanwhile, days-to-sell for certified units was 32.27 days in May, compared with 30.34 in April. For the non-CPO vehicles, however, the turn rate was 56.6 days. For the first five months of the year combined, the average turn rate has been 58.45 days, compared with 55.4 days for full-year 2008. Residual Values Fall for Some Brands Although much of the discussion surrounding automaker bankruptcies this spring has focused on the impact on new-vehicle sales, Spinella said the impact on residual values is just as important to examine. “In CNW’s monthly calculation of residual value projections, both GM and Chrysler future prices have sunk from decent levels just 18 months ago to abysmal this year,” he pointed out. For GM, during May there was a 57 percent difference between the projected values in three-year lease contracts and CNW’s wholesale value projections for the same time. In January 2008, it was 84.6 percent. “Chrysler suffers even more as many vehicles being sold are heavily discounted retail and fleet units,” Spinella stated. “Even with already lowered residual value projections from the arbiters of such data, including ALG and KBB in current contracts, the likelihood is that true wholesale prices three years hence will be barely 34 percent of contractual values.” According to CNW, the industry average for May was 62.3 percent. Among other Big Six automakers, Ford was at 73.5 percent, Toyota was projected at 63.1 percent, Honda was at 81.7 percent and Nissan was predicted at 67.3 percent. “Of the Big Six automakers, only Ford has been on an upward trend this year and has a residual value projection higher than at any time since July of last year,” he concluded.