DRIVEN: As National Sales Level Off, TC Dealers Still See Steady Growth

tcbn-cover-10-16Car and truck sales in the United States are starting to level off after climbing to a record 17.4 million new vehicles last year. But Traverse City dealers say they are continuing to enjoy strong results and don’t expect that to change anytime soon.

“It’s probably true to some extent that sales have peaked (nationally),” said Jim Jeffreys, a 36-year industry veteran and general manager of Fox Grand Traverse, which sells Ford, Lincoln, Mercedes Benz and BMW brands. “You just can’t sustain sales at that level forever.”

But Jeffreys said he anticipates sales at his dealership group will finish the year higher than in 2015.

“We’re still seeing steady growth,” he said. “We haven’t seen it tail off in our showrooms yet.”

He and other dealers say low gas prices, affordable financing and the climbing age of vehicles on the road are the main factors keeping sales at near-record levels.

U.S. vehicle sales in August came in at a seasonally adjusted annualized rate of 17 million vehicles, down from a 17.88 million rate in July. Ford and General Motors have predicted that U.S. auto sales will be down slightly for the full year compared to 2015.

“After more than six years of steady growth, it’s clear the auto industry has finally peaked,” said Karl Brauer, senior analyst at Kelley Blue Book. “While an end to the growth curve was inevitable, having it peak above 17 million units leaves little room for complaining among automotive CEOs.”

Analysts cited a variety of factors for the slowdown, including fewer discounts from automakers and consumers shifting spending to housing.

But at least one local dealer bucked the trend of declining August sales. Serra Traverse City, which sells Audi, Cadillac, Nissan, Subaru, Toyota, Volkswagen and Volvo brands, set an overall sales record that month, said Mike McFarlan, general manager of the Cadillac and Subaru brands.

Serra’s strong performance was due, in part, to the surging Subaru brand, which sold more vehicles in August than any month in the company’s history. Surbaru’s U.S. sales jumped 14.7 percent from August 2015 while most other major manufacturers saw sales fall for the month.

“The Subaru brand has been the auto industry’s best-kept secret,” McFarlan said. “But the buying public is finding out that it’s a great car and a great value.”

Even Volkswagen, which has been embroiled in a diesel exhaust emissions cheating scandal, is still experiencing decent sales, he said.

“Sales haven’t stopped,” McFarlan said. “The cars are still great cars. “Volkswagen made a mistake and has to stand by that mistake.”

Nationwide, Volkswagen sales were down just 9 percent in August, which Kelley Blue Book senior analyst Rebecca Lindland called “truly incredible.” That’s because the company can’t sell diesel models that used to account for 30 percent of Volkswagen’s sales volume.

“The dealers are clearly maximizing contact with every single buyer who walks through the doors,” she said.
Bill Marsh Jr. said sales at his dealership, the Bill Marsh Auto Group, are down slightly so far this year from the same period a year ago. But he doesn’t anticipate a major slowdown anytime soon.

“We’re seeing a continued strong market,” said Marsh, co-owner of the group, which sells Buick, Chrysler, Dodge, Ford, GMC, Hyundai, Jeep and Ram brands. “One of the critical factors driving the market is low interest rates. That’s huge in our business.”

The Marsh Auto Group recently moved its Hyundai dealership from its U.S 31 South location to its main campus on South Garfield Ave. and sold the U.S. 31 property. The group’s two used-car operations on U.S. 31 South also will be moving to the Garfield location later this year.

Marsh said dealerships don’t need as many locations as in the past because shoppers do so much of their browsing and vehicle research on the internet before stepping foot in a dealership.

“Geography isn’t as important anymore,” he said.

Consumer Driven

Local dealers are prospering as an expanding national economy and a restructured domestic auto industry are fueling a sales boom following the Great Recession.

After plunging to a low of 10.4 million U.S. vehicle sales in 2009 – the fewest number of cars and truck sold in 27 years – sales hit a record 17.4 million cars and trucks last year, a stunning 67 percent increase.

And consumers are buying more expensive sport-utility vehicles and crossovers, helping to ring up higher revenues for automakers and dealers. The average transaction price for a new vehicle in August was $34,143, up 2.6 percent from $33,272 in August 2015, according to Kelley Blue Book.

While unit sales appear to be softening, dealers say they see plenty of opportunity for growth. That’s in part due to how long people have been driving their cars and trucks. The average age of a vehicle on U.S. roads hit a record 11.5 years in 2015, according to IHS Automotive in Southfield.

Local dealers also say sustained low fuel prices are giving buyers confidence to purchase high-profit SUVs and large crossovers—vehicles they avoided a few years ago when gasoline cost around $4 a gallon.

In early September, the average price of unleaded regular gasoline in Traverse City was $2.23 a gallon, according to AAA Michigan. That’s down from $2.40 a year ago.

“The average age of vehicles is high and oil prices are low. Nobody sees that changing,” Marsh said. “Those factors certainly point toward strong auto sales.”

McFarlan is so optimistic that he said he wishes he could get more vehicles from manufacturers to sell.

“The manufacturers are running pretty lean,” he said. “They’re not trying to jam us with product like they used to, but there’s a point where it’s a little bit too lean.”

McFarlan said his inventory of a number of hot-selling vehicles is tight, including the new Cadillac XT5 crossover, which has a manufacturer’s suggested retail starting price of $38,995.

“We’ve never had an adequate amount of product to find out how high sales can go,” he said.