Tuesday, November 30, 2010

Auto Sales looking much better these days (Press Enterprise by Jack Katzanek)

Auto sales looking much better these days

10:50 PM PST on Saturday, November 27, 2010

The Press-Enterprise
Automotive dealers in Inland Southern California wonder if they will ever see the kind of robust sales numbers they saw before the recession took its hold on the area two years ago.

But there might be some reasons for them to take heart. Figures suggest that sales of cars and trucks are recovering more rapidly for dealers in Riverside and San Bernardino counties than they are for the country at large, but the industry is still adjusting to new consumer attitudes.

Sales of new vehicles nationally is 11 percent higher in the first 10 months of 2010 than in the same period last year, according to data culled by the automotive research website Edmunds.com. But several Inland dealers seem poised to surpass that pace and say they expect growth of 15 percent or higher this year.

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Paul Alvarez / Special to The Press-Enterprise
"This is still the Inland Empire, with high unemployment and foreclosure rates," says Bill Hatfield, owner of Hatfield Buick GMC in Redlands.
Part of that can be explained by the depth of the recession and how far sales fell in 2008 and 2009. Many had nowhere to go but up, and the loss of more than 15 Inland dealerships in that period has eliminated a fair amount of the competition.

The automotive industry is a significant employer in the Inland area, with more than 16,000 workers, but that is down from about 25,000 three years ago, according to state Employment Development Department data.

Also, car sales contribute more than a third of the sales tax revenue in some Inland cities, mostly the ones without major retail destinations such as malls.

There is some pent-up demand that's pushing sales up, analysts say. But there's a trend that could affect all car dealers for a while: drivers worried about the economy are willing to hold on to their cars for longer periods, even as odometers get well into six digits.

Late last year, the Ann Arbor-based Center for Automotive Research reported that the average car on United States' roads is now 10.5 years old, a record.


Santa Monica-based Edmunds.com analyst Ivan Drury said he expects between 11.3 million and 11.5 million cars will be sold nationally this year. That's up from 10.4 million in 2009 but well below the 16 million or 17 million cars sold a few years ago. Drury doesn't anticipate the sales volume to get back to that level before 2014.

"People are being forced to hold on to them longer. There are vehicles out there with 150,000 or 200,000 miles on them," Drury said. "This economy is teaching people some good lessons."

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A 35-year old photo with John, Bill and Bob Hatfield of Hatfield Buick GMC. The dealership almost was closed because of GM's bailout.
Drury said the typical car owner used to hold on to a new car 4.5 years before trading it in for something new. That had increased to 4.9 years by October 2009 and it's up to 5.2 years now.

Also, Drury said there's been more of a willingness on the part of consumers and dealers to meet in the middle. More buyers are now interested in certified used vehicles with strong warranties, some as high as 100,000 miles.

"Sales of certified pre-owned cars have been a boost and a lot of dealerships are realizing it," Drury said. "They see that more used cars are what the market is looking for, and they won't certify it unless it's a good car."


Sales are up about 15 percent at Quality Nissan in Temecula, said Erik Duncan, the sales manager, and part of that is because of low interest rates and warranties up to 100,000 miles.

"The good deals are a matter of perception for the customer," Duncan said.

General Motors' comeback from bankruptcy is being closely watched in the automotive world, and last weekend's sales activity at Dutton Motor Co. in Riverside was encouraging, said Michael Whitney, the general manager for new car sales for the GM dealership. The deals include zero-percent financing and deferments of the first payments for up to 120 days.

Whitney said there is pent-up demand, but it's still a difficult economy for some.

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Paul Alvarez / Special to The Press-Enterprise
Hatfield Buick GMC in Redlands saw sales this year jump about 18 percent from a year ago.
"There are a lot of people who want to buy new cars right now, but it's still a little bit challenging," Whitney said. "But I think we're going to be up at the end of the year."

Hatfield Buick GMC in Redlands was almost closed because of GM's bailout and restructuring, but the Detroit automotive icon relented last spring. Now the third-generation downtown dealership is up about 18 percent from a year ago, said Bill Hatfield, the president.

But Hatfield said that people in the Inland area are still weighted down by economic problems.

"You have to remember that last year was pretty dismal," Hatfield said. "So we're still not back to where we want to be. It's a good time to buy if you're in the situation where you can buy, and you absolutely have to buy, but this is still the Inland Empire, with high unemployment and foreclosure rates."


When the recession became critical about two years ago, mechanics such as Jerry Lubben, who owns Dee & Walt's Auto Repair in Redlands, became popular. Many people who would have scrapped their older cars were forced to patch them up and keep them on going.

Lubben said he's not as busy as he was a year ago, but people are still hesitant about getting a new car.

"Quite a few have had engine problems or transmission problems, and they're repairing them rather than buying a new car," Lubben said.

Dan Cheng, a vice president and partner for business consultancy A.T. Kearney, said much of the sales increase is being driven by fleet sales to companies such as rental agencies, but he anticipates the consumer market to come back faster than other analysts. He said it will be more of a "V-shaped" recovery, with an increase of better than 20 percent next year.

Cheng said he wasn't surprised so many people decided to hang on to their 10-year-old vehicles, but he doubts this trend of a "new frugality" will continue once the economy improves.

"At some point you start to ask yourself if the cost of servicing an older car, the inconvenience, the risk of having a family member out on the road, is worth it," Cheng said. "Those types of things factor into the decision."

Reach Jack Katzanek at 951-368-9553 or at jkatzanek@PE.com

1 comment:

Ryan said...

Even with the unemployment and foreclosures, the Inland Empire is still a largely commuter based community and demand for cars should remain consistent. Southern California is unlikely to abandon its freeways and opt for mass transit commuter trains in any significant way. What we are seeing is a shift in the types of cars on the roads, more hybrids and soon many EVs will be on the roads, like the Nissan Leaf.