While U.S. auto sales softened this past April, and many customers continued to flock to used car lots due to vehicle affordability issues. However, this uptick in used-car sales might not last for much longer. Here to discuss April’s winners, losers, and more of what dealers can expect in the coming months, is Karl Brauer, executive publisher for Autotrader and Kelley Blue Book.
Jim Fitzpatrick: Karl Brauer, thank you for joining us again on CBT News.
Karl Brauer: Happy to be here with you Jim always.
Jim Fitzpatrick: Sure. It goes so quick. Seems like we just spoke to you about the numbers for March and here we are talking to you about numbers for April.
Karl Brauer: Yep. Just keeps coming at us.
Jim Fitzpatrick: It really is something. Tell us, what were some of the winners and losers for last month?
Karl Brauer: Well it was interesting because we had predicted that sales would be better, that they might actually outdo last April’s sales and certainly be above 17, instead they came in at about a 16.5 SAAR, so it was lower than expectations. We definitely saw some of the big players down, Toyota, General Motors, FCA, Ford, they were all down. We had a few winners like Honda and Hyundai. Some of the luxury brands did okay. Nissan did alright. But the overall sales were down 2.3%, that’s what they were off in April and I think it’s starting to wear on a lot of the industry observers because, you know, every month that it’s down, you’re like well, it’s still early in the year, but it’s not so early in the year anymore Jim. We’re starting to get into the meat of the year and if we stay on this track …we’re not going to be at 16.7 or 16.8, we’re going to be at 16.5 or lower potentially. I think there’s a lot of questions now.
Jim Fitzpatrick: Yeah. Yep, that’s for sure. Do you think some of those snowstorms that hit in late April hurt the industry, which is crazy?
Karl Brauer: Well we were trying to blame that on the January numbers because we know that stuff was going on then, but sure enough, we had weather elements playing a role as late as April this year too. Who knows.
Jim Fitzpatrick: Yeah, for sure. Talk to us about some of the data for April that has affected-what stands out for new and used sales?
Karl Brauer: Well, you know, it was interesting to see a brand like Jeep down now four months in a row, right. Jeeps’ one of these really strong brands …you expect them to be up and for them to be down for a fourth month in a row, just really speaks to the saturation point that I think we’ve gotten to on SUV’s. For a long time, for years, if you built any kind of an SUV, there was a customer waiting to buy it.
It’s not like that anymore Jim. There’s a saturation point we’ve hit and doesn’t mean you shouldn’t still be producing SUV’s because they still do better than cars, but they’re not this kind of free ticket to market share and sales like they used to be.
Jim Fitzpatrick: Yeah that’s for sure. Yep. Tax refunds, did that play a role in April?
Karl Brauer: Yeah and we still did see some tax refund fallout too, I think. There were lowered refunds by people and it’s kind of this psychological effect where people are actually being taxed less during the year, but they’re used to having this check come in and this kind of lump sum and instead of getting additional money in their weekly or bi-weekly or monthly payments, they’re getting a little more money, but they don’t see this big lump sum like they’re used to and the psychological effect is they don’t have a big chunk to put on a down payment for a new car like they’ve had in the past.
Jim Fitzpatrick: That’s right. That’s right. That always gave us a nice little bump in March and April didn’t it?
Karl Brauer: Yeah, yeah. I think that really affected it. Interest rates are still pretty high. They’ve gone from the mid five’s a year ago into the sixes now. Transaction prices area as high or higher than they’ve ever been or hit new numbers on transaction prices in terms of cost.
There’s not even that strong of incentives too. A lot of times you’re starting to see some incentive activity and in years past, manufacturers only needed that to move the metal, but they’ve been more disciplined, so the inventory is … they are building, but they still aren’t at the levels that they start to feel a sense of panic on the dealer side or the manufacturer’s side. You got high transaction price, high-interest rates and pretty low incentives, relatively speaking.
Jim Fitzpatrick: Right. The economy is just moving along with just a record low unemployment rate and what is all this mean? Typically when you have all those great indicators out there, you know business is pretty strong in the showrooms with the exception of the interest rate climbing up there a little bit.
Karl Brauer: Sure. You’re exactly right Jim and that’s really kind of the question, is that, in spite of great unemployment numbers, great income numbers, people are taking home as much or more money than ever, it doesn’t seem to be enough to overcome a lot of these other issues, the high-interest rates, the high transaction prices and honestly, I think there’s a little bit of uncertainty too. I mean, we do still have questions about, are we in a cycle where things are going to start going the other way. Are there going to be tariff issues coming from China and what’s that going to do to the stock market? You know, one thing that I think probably plays into this uncertainty is the stock market may be hitting record highs, but it also seems to move up and down at levels that make people nervous. I think that adds to the trepidation for a lot of potential car buyers.
Jim Fitzpatrick: Right. I think the overall affordability of new cars, we spoke to a dealer earlier today and he shared with us that a number of his customers that he knew to be new car buyers over the last 15 or 20 years, are now coming in and buying CPO vehicles, cars that are just two years old with 15 or 20,000 or 25,000 miles on them and he said it was really amazing that he had seen a change in his showroom from those customers that were hardcore, new car buyers that said nope, I’m going certified pre-owned this time around and happy to do it.
Karl Brauer: That’s exactly what we’re seeing. That’s exactly it… to hear, kind of, like from the front lines a story like that because that’s exactly describing what we’re seeing on our side too, which is that these high transaction prices and interest rates are resulting in unusually high car payments that people may not be comfortable with.
And the counter is to go for a slightly used CPO car, that gives you a lot of that new car peace of mind and warranty coverage, but does save you enough to basically balance out the high transaction prices on new vehicles.
Jim Fitzpatrick: Yeah, that’s right. For sure. Then, you know with Trump applying more pressure on the Chinese trade deal that has got the auto industry in a little bit of angst, doesn’t it?
Karl Brauer: Yeah. If we go back toward a 25% tariff on everything from China, whether it’s cars or parts, that’s just going to have a comprehensive impact on the entire industry, that’s pretty scary. You have various people running the numbers on what that’s going to do to sales and to pricing and it would be a pretty big impact, a pretty big negative impact on the car sales.
Jim Fitzpatrick: Yeah, that’s for sure. What’s your take on the balance of the year? Are you guys changing your estimated SAAR run rate for 2019?
Karl Brauer: We’re at 16.7 now after four months and our estimation is 16.8. Right now we’re not going to make a change, we’re going to stick with 16.8 for the time being. I still feel like probably the biggest factor is the one we just talked about, which was the tariff factor. If that is resolved in a good way, I think we could absolutely hit 16.8 or more because I think that will settle a lot of fears that have people kind of holding up, not just in the car world, but in the economy in general, which is impacting the car world. If it gets settled in a way that’s not so positive for the U.S auto industry or the U.S industry in general, we could struggle to hit 16.7, maintain the 16.7 that we’ve been at so far this year. I’d say that’s probably, in my mind, the single biggest factor that maybe we’ll know something on in the next month or two and that’ll lead to the second half of the year with some more confidence.
Jim Fitzpatrick: Yeah, for sure. Well, it will be interesting to see how the Summer shakes out too, because obviously that’s a big selling time for auto dealers, you know beginning in April and going pretty much all the way through August and September, right. If you don’t make it there, you’re in trouble, right.
Karl Brauer: No, you’re right. You know the other thing I would throw in there too, that’s going to be interesting to watch this year and that we’re already seeing interesting statistics on is the truck battle. We talked before about how Ram as really gobbled up some sales and some market share …
Jim Fitzpatrick: Yep.
Karl Brauer: … and that really at the expense of Silverado and now you’ve got this mid-size truck category that’s been really lit up between Ranger and Gladiator, just in the last, like really month or less since they’ve gone on sale. You know Ram was up, even though FCA was down, Ram was up in April and so the truck battle is huge and we know that Silverado is coming out with more versions. They’ve still got more trim levels and engines and drive trains that they’re releasing. There’s this sense, it’s like, well Ram’s been beating Silverado, but will that come to an end when the full Silverado machine is up and running?
Or will Ram continue to push hard? Ram’s been giving away some pretty aggressive incentives. Kind of the counter to everything we were talking about, Ram itself as done some pretty aggressive incentives and that’s on the full-size side of the aisle and then you go down to the mid-size and again, a bunch of variables with new Gladiator and new Ranger going up against Tacoma, which as always been a huge player there and then the GM mid-sizer, which honestly, are starting to look a little dated in that category, because of how long it’s been since they redesigned it.
Jim Fitzpatrick: I know.
Karl Brauer: Trucks are where there’s still a lot of profit and a lot of potential sales are going to happen for the rest of the year. I think within the industry, that segment will be very fascinating to watch for the rest of the year.
Jim Fitzpatrick: For sure. Karl Brauer, Executive Editor for Kelly Blue Book and Autotrader with Cox Automotive. Thanks so much for joining us on CBT News. Very much appreciate it and we’ll see you right back here next month, which seems to be just like a few days away somehow. I don’t know how, but …
Karl Brauer: It’ll come quicker than both of us are probably ready for it, but I’m sure it’ll be interesting when it arrives.
Jim Fitzpatrick: That’s exactly right. Should be a good month though overall.
Karl Brauer: Yeah.
Jim Fitzpatrick: All right. Thanks so much, Karl.