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March Opens With Better Floor Traffic, Strong Closing Ratio, Reports CNW

March 15, 2011

An increase in floor traffic and a strong closing ratio indicate that new-vehicle sales in March will improve 11 percent from the year-ago period, according to CNW’s Retail Automotive Summary.

The recent earthquake and tsunami disaster in Japan, however, is expected to impact the tight supply chain of Toyota, Nissan and Honda. Disruptions to this chain could occur within the next 45 days and impact vehicles built in Japan and shipped to the United States, as well as vehicles assembled in the United Stated with critical imported components, wrote CNW’s Art Spinella.

Despite Japan’s natural disaster and the potential negative effects on the industry worldwide, there were some positive signs in the opening days of March. Floor traffic is up 13.7 percent and closing ratios are up 1.22 percent this month compared to the year-ago period. As a result, same-store sales are up 13.77 percent compared to the year-ago period.

In addition, the CNW Jitters Index continues to fall, dropping 1.1 percent in March and indicating that consumers seem more at ease with their economic issues, according to Spinella.

These positive consumer and industry trends will help push new-vehicle sales to 1.2 million units in March, an improvement of 11 percent from the year-ago period and resulting in the best March since 2008. However, the industry will still fall below the 1.67 million units recorded in 2000 when the industry sold more than 17 million units.

FICO Scores Fall in March

Credit scores continue to drop in March, following a steady decline since January of last year. “The finance industry continues to approve loans for what were just a year ago marginal buyers,” Spinella wrote.

The average FICO score for new-car buyers is 685, including leasing and balloon-note options.

The share of new-vehicle buyers with FICO scores of 670 or less is forecasted to reach 12.78 percent of total loan approvals in March.

Subprime loan approvals improved in March for new and used vehicles. On the new-car side, subprime approvals increased 28.5 percent compared to the year-ago period.

Finance, Lease and Cash Deals

Cash deals continued to decline, while leasing gained some ground in February, according to Spinella.

Leasing accounted for 23.81 percent share of new-vehicle deals and cash accounted for 6.89 percent of deals. Finance accounted for a majority of deals, with a share of 69.29 percent.

Used-Vehicle Market Summary

Looser credit is expected to help used-vehicle sales improve in March, making the first quarter of 2011 the best one since 2008, according to Spinella.

Total used-vehicle sales are forecasted to reach 2.5 million in March, an increase of 5.5 percent from the year-ago period. The improvement is spread across all channels. Franchised dealers, independent dealers and private-party sales are expected to jump 0.5 percent, 10.7 percent and 5.4 percent, respectively.

Year-to-date sales are expected to reach 6.3 million units, compared to the year-ago result of 5.9 million units.

The average FICO score of used-vehicle buyers continued to fall in March and is expected to reach 615. Nearly 39 percent of used-vehicle buyers are expected to fall below 670.

Despite the positive trends in used-vehicle sales, early March data shows that the combination of a tightened used-vehicle supply and high consumer traffic may cause a shift in the mix of vehicles available. One reason for this shift is gas prices, which may send consumers to the “car side,” Spinella suggests.

“While this will have little impact on casual sales, it will definitely affect franchised and independent dealerships that now have to beware of overloading lots with trucks or being forced to lower truck prices to facilitate a sale,” Spinella writes.

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