BANDON, Ore. — October kicked off to a strong start after the new-car industry broke out of its summer funk in the second half of September, according to the Bandon, Ore.-based CNW Research. Floor traffic was up and closing ratios were on the rise, which could push the sales pace to its highest level this year.
Driven by higher incentive levels and greater trade-in values, consumers marched back into showrooms during the first week of October, with floor traffic up nearly 18 percent vs. September and 3.3 percent vs. the year-ago month. Closing ratios jumped 10.2 percent vs. September and 7.39 percent increase vs. the same month last year.
“On the back of higher incentives and greater trade-in value, the new-car industry broke out during the second half of September and the opening days of October look to be carrying that good vibe forward,” wrote CNW’s Art Spinella in his monthly e-newsletter. “October could be the high-water SAAR (Seasonally Adjusted Annual Rate) mark of the year, reaching a 14.2 million delivery rate compared to 12.3 million a year ago.”
Concerns about the economy still persist, however, with CNW’s Jitters Index, which measures consumer sentiment regarding home-centric economic issues, edging up 0.8 percent from last month.
“Consumers continue to be concerned about their homecentric economic outlook,” Spinella wrote.
Confidence among shoppers intending to purchase a vehicle was at 74.29, a level that typically signals a need for more incentives. “Historically, this occurred when the confidence number fell below 75 and that’s the case today,” Spinella added.
The auto finance landscape also continued to show improvement. According to CNW, subprime approvals were up 3.8 percent in the opening days of October vs. September, and 8.4 percent vs. a year ago. This marked the first time in months that approvals for that credit segment climbed on a sequential basis.
Additional, the average FICO score of new-car buyers climbed to 691.8 during the opening days of October, compared to 708 last year and 691.4 in September.
CNW also noted that the used-vehicle market may have hit a low point in terms of inventory levels. According to the market research firm, the used-vehicle days’ supply was down nearly 20 percent vs. a year ago. “It appears the industry has reached the low point in inventory volume, which has been followed by softer prices,” Spinella wrote. “That will continue to be the case over the coming few months at least.”
Spinella also noted what is becoming a troubling trend: The gap between MSRP and transaction price is shrinking. The different between the two prices was down to 84.3 percent. While this is not historically a bad ratio, it does indicate a weakening in demand that is being offset by more incentive spending, which has increased 9 percent since last month. And with 80 percent of new-car intenders saying they expect a major incentive if and when they buy, dealer and manufacturer profits could feel the pain in the coming months.
“We’re looking at a yellow caution flag,” Spinella wrote. “If the MSRP-TP gap falls below 83 percent, dealer and manufacturer profits will undoubtedly be damageed. If it falls below 80 percent, it would be time to head for the hills.