Great Deals on New Cars A’Comin

For the past 6 months I have been hearing this chatter from family and friends working in the automotive manufacturing industry. My buddy at my former banking gig and I just had a lengthy discussion about this as well. So, finally the Wall Street Journal has confirmed the story.

New car sales are down significantly. It’s believed that both dealerships and lenders will dole out the biggest deals since 2008. With that said, anyone thinking buying a new Tundra should probably wait another few weeks or so. Here is the link to the Wall Street Journal’s article.

https://apple.news/AAtAxtb1sReSKX7RPzvg8Mg

 

Only the first two paragraphs of the story are readable. The rest is blocked out for subscribers only.

 

interest rates are up so yeah..less people borrowing to buy houses and cars.

 

Here is the full article for any having trouble finding it.

https://www.wsj.com/amp/articles/car-dealer-lots-are-flush-with-unsold-cars-as-sales-are-expected-to-drop-11549319709

Car Dealer Lots Are Flush With Unsold Cars as Sales Are Expected To Drop
Analysts warn car makers could be forced to cut factory production with U.S. auto sales expected to weaken in 2019

There were 3.95 million vehicles on dealership lots at the end of January, a 4% increase from December and up nearly 3% from the prior-year January, according to WardsAuto.PHOTO: DAVID ZALUBOWSKI/ASSOCIATED PRESS



By


Adrienne Roberts

Feb. 4, 2019 5:35 p.m. ET
Car dealers are beginning 2019 with a heavier inventory of unsold vehicles on their lots, a situation that some analysts say will put pressure on them to cut factory output as U.S. auto sales are expected to cool this year.

There were 3.95 million vehicles on dealership lots at the end of January, a 4% increase from December and up nearly 3% from the prior-year January, according to data released Monday by WardsAuto.

While January is typically a slower month for new-vehicle sales, analysts say the rising stock levels are becoming problematic because car companies will start this year with more unsold inventory than they had three years ago when U.S. auto sales peaked at 17.55 million for the year. Industry forecasters and some auto executives predict sales this year will fall well below that figure, dropping to under 17 million vehicles for the first time since 2014.

General Motors Co. has already moved to end production at five North American factories this year in response to falling sedan sales, and aiming to get ahead of an expected U.S. car market downturn. More auto makers could be forced to follow suit as rising interest rates on new-car loans and more affordable options on the used-car lot are expected to put a damper on new-car sales this year.

“We could see more of the pain we saw last year with GM and inventory being taken out on the car side,” said Tyson Jominy, an analyst at J.D. Power.


Ford Motor Co. , which late last month reported a 27% drop in operating income for the full-year 2018, has moved to phase out slow-selling sedans and shift more production to higher-margin crossovers, sport-utility vehicles and trucks. GM andFiat Chrysler Automobiles NV could provide more details about the year ahead when they report earnings this week.

Auto makers sold 17.3 million vehicles last year in the U.S., a surprisingly strong performance that defied many industry forecasts.

U.S. auto sales in January, however, were down 1% over the prior-year month, according to industry trade publication Automotive News. Passenger-car sales, which include sedans, dropped 4% last month, underscoring a continued shift in consumer preference toward larger, more versatile crossovers and SUVs.

Jonathan Smoke, an economist with Cox Automotive, said last year’s strong results were lifted by sales to fleet buyers that aren’t likely to be repeated again this year.


The new tax-reform package made buying and replacing vehicles used for business cheaper because the entire expense could be written off all at once, Mr. Smoke said. That led to a surge in companies buying work vehicles at a low cost, he added. But now that those businesses have newer models, they’re not expected to make those purchases again this year.


Car companies also leaned more on sales to rental-car firms last year to keep results growing, analysts said. “It’s a short term Band-Aid,” said Mark Wakefield, a co-head for the automotive practice at consulting firm AlixPartners. Typically, manufacturers prefer to sell to showroom buyers because they can command stronger prices at retail. Rental-car firms often get a discount for purchasing cars in bulk.

And yet, auto makers plan to build about 17 million cars in North America this year, much of it destined for the U.S. market and similar to the factory output over the past two years when U.S. auto sales were at near-record highs, according to forecasting firm LMC Automotive.

At the same time, car companies are trying to resist deepening discounts to sell down unsold car-inventory. The industry spent an average of $3,720 per vehicle in January to incentivize sales, down $140 from the same year-ago month and representing the seventh consecutive month spending has fallen year-over-year, according to J.D. Power.

With sales projected to weaken this year, analysts say auto makers will be under pressure to trim factory production in order to avoid offering steeper discounts—a task made harder with many new crossovers and electric vehicles set to roll out in the coming years, further crowding dealer lots.

About 48 new-model launches are planned for the U.S. this year, up from 42 last year and 36 five years ago, according to an analysis by Bank of America .

Some dealers say auto makers are being overly optimistic for the projected demand.

David Rosenberg, chief executive for New England dealership chain Prime Automotive Group, said he is already getting flooded with too many recently launched crossover and truck models, such as the Toyota RAV4, Ram 3500 and Audi Q8.

“There is an oversupply of new products, but not everyone is going to achieve their sales targets,” Mr. Rosenberg said.
Ryan Gremore, president of the O’Brien Auto Team, a dealership chain in Illinois, Florida and Kentucky, said low interest rates in the past have made it cheaper for dealers to carry higher levels of inventory. But with rates now going up, it will become more expensive to hold on to unsold vehicles and retailers are likely to be pickier about what they stock, he added.

“We’ve carried too much inventory because we’ve been conditioned at artificial rates,” Mr. Gremore added.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

 

Yes, interest rates are up. However, car lenders aren’t as picky right now. They are even reaching out to consumers who have current auto loans, and offering them lower rates if they refinance with them. NBC News had a piece last week, which spoke about the fact that lenders (mortgage), are returning to their old lending practices. One practice in particular, is, that of allowing borrowers are allowed to use their stated income without having to provide verifiable evidence. What these lenders do, is offer much higher rates and ballooned payment loans to those borrowers with stated income only.

The same thing holds true for car lenders. They are much more willing to offer sub-prime loans right now. That’s a similar practice of many lenders prior to the depression of 2008/2009. I only hope that they don’t repeat what they did in recent past. My buddy just bought a BMW that was only 5 months old from the auto auction. The car still had the new car smell. The vehicle history showed that the car was a repo by the lender. He also told me that there were a boatload of similar vehicles at auction, like the one that he bought. Is that a sign of things to come???