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Uptick in Subprime Approvals Helping July Sales

July 24, 2012

The industry should take another step toward recovery with the delivery rate bouncing back to 14.3 million units for the first 15 days of July, CNW noted in its monthly newsletter. But the Bandon, Ore.-based research firm said the industry is still a long way from recapturing the strength it exhibited just a decade ago.

Even if the industry sells 14.2 million units this year, sales would represent only 4.5 percent of the U.S. population. In 1986, that percentage stood at 7.5 percent. In 2000, it was 6.2 percent. In 2007, the year leading up to the Great Recession, sales represented 5.4 percent of the population.

“Based on new-car sales as a share of total U.S. population, the industry remains well off the mark,” wrote CNW’s Art Spinella. “For the industry to hit the CY2000 share would require selling 19.5 million new units.”

For the first half of July, floor traffic was up, as were same-store sales vs. a year ago. Both of those metrics, however, were slightly offset by a lower closing ratio, wrote Spinella. Based on what’s happened so far this month, he believes the industry is likely to sell 1.28 million units, representing a 20 percent increase from last year.

“But here’s the rub: The CNW Jitters Index jumped 3.8 percent with double-digit increases for ‘Federal Taxes,’ ‘Meeting Day-to-Day Needs,’ and ‘Condition of Investments,’” noted Spinella. “Food concerns can’t rise much more since they are already at 9.48 on a 10-point scale.”

The only Jitters metric below a year ago are concerns related to gas prices, which is down 15.8 percent.

Working in the industry’s favor this month, however, was the massive 24-plus percent spike in the number of subprime loan application approvals. “As we said last month when approvals were down, this rollercoaster for subprime will continue at least until December when financial institutions get a clearer picture of medium-term economic activity and conditions,” Spinella wrote. “Today, it’s a matter of keeping the portfolio flexible and conservatively balanced.”

As for new-vehicle sales reaching those highs from a decade ago, Spinella noted that consumers are still gravitating toward the used-car segment. Factoring in that trend, however, still has the industry off the sales pace of a decade ago. “A look at the combined new and used sales as a share of the population shows there has been a significant deterioration here as well,” wrote Spinella. “At the height of the recession in 2009-2010, [that share] had fallen below 16 percent and remains under 18 percent this year, even with a strong used-car market.”

The good news is that fewer consumers are choosing the used vehicle segment vs. new. It’s not a big percentage, but the slight shift has been enough to replenish badly depleted used inventory for franchised dealers through trade-ins. That, along with a shortage of five-year-old and newer models at independent dealers has boosted the overall industry to 47.5 days’ supply, wrote Spinella.

“Double-digit increase in new and used sales are unquestionably worth a cheer or two. But the industry is far from the healthy, robust athlete it was just a few years ago,” Spinella wrote. “The key holdback among consumers remains having well-paying jobs and solid confidence in the economy. Today, the industry is feeding off of those who need a car, not want one.”

Comments

  1. 1. Bill [ July 24, 2012 @ 02:10PM ]

    sub prime anything is what got us into the mess we are in now. we have an idiot in the white house........where are the jobs so people can work and buy cars.

  2. 2. Charlie [ July 25, 2012 @ 05:00AM ]

    I feel if you don't have the ability to finance customers with credit issues you will be missing out on great portion of the market. Especially in today's credit enviorment. Remember the credit challenged customer of today was the prime customer 5 years ago. I will take that customer over the customer that has excellent credit and is trying to chisel you down to a nothing deal. Why? Because he can. Then this same customer you need to pamper him or her or they will kill you on CSI.

  3. 3. Cliff [ July 26, 2012 @ 09:08AM ]

    Sub prime did not get us into this mess and we don"t have an idiot in the white house. We do need jobs that are good paying so people can afford these high payments. Charlie, i agree with you I would rather have a customer with some credit issues or a lower score for two reasons, they are better to deal with and they don"t try to chisel you down as much

 

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