PRINCETON, N.J.-Pent-up demand for new cars may have come and gone, cautions one analyst who points to dealer data that indicates consumers are slowing down new car purchasing.
Opinions are mixed among automotive industry experts, CU lenders, and car dealers interviewed by Credit Union Journal over what 2013 will bring. A number of sources report a slow start to the year, while others have come out of the gate strong.
While there is division of opinion on future sales, experts agree on one thing-it's going to take sub 2% APRs to compete in new car financing and that number may be still falling.
Kevin Tynan, senior automotive analyst for Bloomberg Industries in Princeton, N.J., told Credit Union Journal that the dealer inventory numbers indicate consumers "may be ready to take a little breath on new car sales."
New car sales bounced back last year with 14.8 million units, up from 12.8 million in 2011. But the number is nowhere near pre-recession levels that topped 17 million units annually, leading many analysts to see a great deal of pent-up demand still in the market. But Tynan is not so sure.
"Bloomberg gets a sweep of dealer pricing and inventory data from Edmunds.com. It's real time, what's happening on the ground," he said. "The numbers that show how long vehicles sit on the lot before they are sold has moved up recently. The average was 64 days in February, the highest since 2009. That says demand has slowed."
When new cars are moving off the lots dealers are holding them for about 30 days, said Tynan. "When it gets to 90 days, as it did when there was a great deal of concern over GM and Chrysler in 2008-09, that basically says consumers are not buying."'
A Slow Start
Ricky Alessi, general manager at Atlantic Honda in Bay Shore, N.Y., confirms what Tynan sees, telling Credit Union Journal his business was off 2% to 3% in January and February. But he sees things improving.
"We are now up ahead with our numbers in March. We had a slow start, especially with all the snow here in the Northeast."
In Harrisburg, Penn., Pennsylvania State Employees CU has had a slow start with new car loans, according to CEO Greg Smith. "I think our members hunkered down a little after the FICA tax kicked in and gas prices ran up. Now we are starting to rebound."
At Security Service FCU in San Antonio, the largest CU indirect lender in the country, new car business is still strong. After closing the year with nearly $2.7 billion in indirect loans, the dealer business continues to roll in in 2013, reported Charles Goss, SVP/CLO. "What has kept our business strong over the years has been our relationships with dealers. We give them great service, with quick decisions and we fund loans fast."
Tony Boutelle, president and CEO of CU Direct, Ontario, Calif., said CU Direct CUs experienced a strong start to the year, with solid months in January and February. "March numbers are looking good, as well."
Pentagon FCU, Alexandria, Va., has nearly doubled loan volume out of the gate this year over last, according to Marketing VP Steve Troxel. The CU is cutting off 1% from its already low 1.74% rate for 48 months (CU Journal, March 25).
While CU lenders remain optimistic for new car sales this year, Bloomberg's Tynan again cautioned against assuming there is still pent-up consumer demand. Tynan surmised what now could be bolstering new car sales, which many expect will reach 15.3 to 15.5 million units by year's end, is simple organic demand fueled by a lot of low rates and manufacturer incentives.
"We saw numbers that showed manufacturer incentives on a new purchase were up 8.5% year over year in January and 8.3% in February," said Tynan. "That is the most aggressive two-month period going back a very long time...You look at the volume numbers and say the consumer is healthy and buying new cars. But if you look at some of these other numbers under the surface, especially the days dealers are keeping cars on their lots, there may be a little trouble brewing."
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