U.S. car, truck dealers upbeat on economic outlook

Jan. 29, 2002
U.S. automakers and auto parts suppliers may be struggling for profits and squeezed by falling sales, but the people who sell cars and trucks are feeling
U.S. automakers and auto parts suppliers may be struggling for profits and squeezed by falling sales, but the people who sell cars and trucks are feeling pretty upbeat. Dealers and industry experts at the National Automobile Dealer Association convention this weekend said the worst of the U.S. recession appeared to be over, even as new car sales are expected to fall from last year's near-record levels. "I'm more optimistic about the year than most of the forecasters," said William Cook, a dealer from Farmington Hills, Michigan, who sells several foreign brands. "If we come out of January ahead of where we were last year, that really tells me something." After sales of 17.2 million vehicles last year, automakers and Wall Street analysis had predicted that U.S. new vehicle sales would fall to about 15 million. Vehicle sales accounted for 20 percent of total U.S. retail sales last year, and are often tracked as a barometer for the rest of the economy. But those predictions have been going up in recent weeks as expectations of a stronger second half of the year have grown. NADA economist Paul Taylor said he expects industry sales to hit 15.9 million, boosted in part by a strong dollar, which lowers the prices of foreign vehicles, and improving consumer confidence. "The strong economy and the strong consumer has repeatedly surprised us on the upside," Taylor said. "This is simply a wealthier society than it was 10 years ago and a lot of what we see in consumer spending reflects that. Jerry Powers, a Honda dealer from Bremerton, Washington, said he expects 2002 to be "very good," and that his area had seen something of an economic recovery. "The way January is going, I would anticipate that '02 will be on a par with 2001," he said. It's easier to be optimistic when your industry as a whole has made a profit every year for the past 50 years, as new-vehicle dealers have. Those profits have been generated by a number of factors. Competition to sell new vehicles is tightly controlled by automakers and the dealers, who lobbied for stronger legal protections after some attempts by technology firms and automakers to sell vehicles without them. While Detroit's Big Three automakers were hit last year by the drop-off in demand after the Sept. 11 attacks and then the high costs of interest-free loans, dealers reaped the benefit of near-record sales while shifting much of their incentive costs to automakers. And new-car sales have traditionally accounted for less than 20 percent of a dealer's profit. Last year, Taylor estimated, new cars provided 25 percent of the average dealer's income, with used cars supplying 29 percent and the remainder coming from service and parts sales. An auto dealership "is really four or five counter-cyclical businesses," said Art Spinella, an industry analyst with CNW Marketing Research. "If new car sales are up, used cars are down. If the economy goes down, new sales go down but used sales go up. In all cases you get insurance, financing and extended warranties." Wall Street has taken notice of the dealers' resilience in recent weeks, sending shares of some publicly traded auto dealers to near their 52-week highs, including AutoNation and UnitedAuto Group Inc. Those companies, along with the large private dealership groups, are expected to increase purchases of other dealerships this year.