Automobile sales are putting the pedal to the metal

Filed under: Focus |

The National Automobile Dealers Association, in coordination with statistics from financial services company Comerica, reports that in 1979 Americans had to work 22.9 weeks to buy a new car. Despite that today’s new car costs are about the same as a house in the Midwest in the mid-to-late seventies, Americans have to work a couple weeks less (20.8 weeks) to buy a new car. In the 1980s and 1990s labor hours necessary to purchase automobiles averaged between 27 and 30 weeks.

And the auto industry says in 2004 there are more people who can afford new cars.

According to the “Colorado Auto Outlook” report, published for the Colorado Automobile Dealers Association, “new vehicle purchases are within reach for a large number of consumers.” The association predicts that consumer affordability along with improved personal income and accelerated employment and economic growth will create a less-than-3-percent decline in new car sales from 2004 to 2005.

Although a projected decline in some industries is not a positive indicator of the following year’s market, car sales (based on new vehicle registrations) in Colorado decreased at a 7.9 percent rate from 2002 to 2003 and a 2.9 percent rate from 2003 to 2004. The association is forecasting a 2.7 percent decline in car sales for 2005, and the diminishing negative percentages are encouraging to the automobile industry.

“Colorado has been a little behind in the market in its recovery from the downturn a couple years ago,” said Bill Barrow, the president of the Colorado Automobile Dealers Association. “In Denver, when the high tech industry was booming and engineers were making $120,000 to $130,000 a year, they were buying new cars.” Barrow said many of those engineers are now making $60,000. “They have the same house payment, so many have gone into the used car market,” he said. “But the new car market is beginning to come back.”

Jerry Colton is the owner of the Al Serra Chevrolet-Hummer dealership north of Chapel Hills Mall, and he said incentives, such as 0 percent financing and sizeable manufacturer rebates, have made a dent in new car sales. And Colton said he has seen strong increases in sales since he opened his doors in 1998.

He is adding a new building for Hummers this year, the dealership’s used and new car parts and services department will double from 16 bays when Colton adds another 14 bays next year and his inventory is currently the “highest its ever been,” he said. Al Serra is No. 1 in the state and in the top-10 in the western United States in sales of General Motors certified used vehicles, he said. Colton said that last year he sold 44 Corvettes – more than any other southern Colorado market. And customers are driving eight to 10 Hummers off the lot every month, he said.

“We’ve been fortunate with our location,” he said. “The northeast side (Colorado Springs) has tremendous growth. It’s a growing market up here, and in that market are people with nice homes and good jobs. Although they are looking for higher priced merchandise, they still want good deals.”

Colton said the Internet has forced those good deals. “Ninety to 95 percent of our customers have been on the Internet looking for deals before they come in here,” he said. “They shop about 50 stores in an hour on the Internet. The Internet has caused us to price vehicles lower – we must be competitive.”

Barrow said people are getting information from the Internet but direct Web-based sales have not “taken off as predicted.” He said most people still want to experience the drive before they buy.

Not the case in Motor City for used car dealer Five Star Motors. Byron Dormire is the “motoring advisor” or “all-round sales guy” for Five Star, and he said about the only thing going at his dealership is the Internet. “We do as well on the Internet selling cars around the country,” Dormire said. “We get queries for convertibles from Florida and California, and Arizona wants Jeeps.”

However, overall sales are off 40 percent from last year, he said. “We are in the heart of the lions den in Motor City, and we are selling a perfectly researched used vehicle and no one is buying.” Dormire said the average used car sale is $20,000, and all the cars have factory warranties. The cars range from a three-year-old Volkswagen Jetta with 10,000 miles to a 2004 Mini Cooper. “Those cars are appealing in a bullish market, so we attribute it (the sales decline) to the economy,” he said. “I think consumer confidence is low and the election didn’t help – it was status quo after the election. People are holding tight – they don’t want to spend the money.”

Dormire said incentives may be helping new car sales, but his used car dealership has stopped advertising this year because “it’s just not working.” He said this time last year they experienced one of their best months. “From what I see and hear on the streets, it’s quiet out there right now,” Dormire said. “The large corporations are grabbing the lion’s share of the business. The only ones making money are the ones with large advertising budgets.”

Phil Long is a large corporation with 15 Colorado franchises that sell about 30,000 cars a year total – half-used and half-new, said Bob Fenton, a managing partner with the dealership. And the franchises in Colorado Springs are making money. “We lost 14 percent in sales from 2003 to 2004 in the Denver-metro area, but the Springs market was up 4 percent from 2003 to 2004,” Fenton said. He agreed that 0 percent interest rates over 72 months and rebates from manufacturers as high as $5,000 have pushed the new car market.

Ford came out this year with a 2004 F-Series truck and that has meant record sales for Phil Long, Fenton said. “Ford has sold 940,000 of the F-Series trucks nationwide, outselling Dodge and Chevy combined,” he said. “It’s ignited the truck market.” Full-size pickup truck sales in Colorado exceeded the total share in the United States by two points, according to the “Colorado Auto Outlook” report. Trucks are a huge market in Colorado, Fenton said, but he attributes Phil Long’s success to the military.

“We tend to take this area for granted when it comes to the military,” he said. “But we should be grateful for the economic impact of the military. There is so much put into the community when you have 50,000 active duty military here.” Fenton said the Iraq deployment of the soldiers shocked the Springs automobile industry, but their return has propelled sales. “The local economy is healthier than the rest of the Rockies because of it,” he said.

Dormire and Colton said the military’s presence has not affected their car sales. Colton said he is too far north, and Dormire said he experienced no impact when the soldiers returned last spring. “June was one of our worst months,” he said.

The military has traditionally been a focus for area car dealers, but enticing incentives have attracted a variety of buyers. “It’s all over the board as far as the target market,” Barrow said. “Baby boomers are definitely buying new cars and the incentives, like being able to walk in and buy a new car on a six-year contract with no interest, make the used car less desirable and pulls people from all age groups – from 25 to 75.” But Barrow added that the people buying cars have higher than average incomes.

And those with a high income can afford to fill up their tanks regardless of exorbitant gas prices, which have dampened sales in some areas, Barrow said. However, sport utility vehicles that are smaller, lighter and more fuel-efficient – what he refers to as “SUV lights” – are popular, Barrow said.

The trend toward fuel efficiency is on the upswing.

The hybrid car, which is all electric or a combination of two sources of power, is catching on. Barrow said manufacturers are cranking up th
e production of hybrid cars. “Almost every manufacturer has one on the drawing board,” he said. The SUV hybrid is “tremendously successful,” Barrow said. At an automobile show that he attended, he said Toyota featured a hybrid prototype of a large truck the size of a three-quarter ton Chevrolet Pickup that would get 50 miles to the gallon. “We’ve come a long way baby,” Barrow said.

From a brand new 1976 Oldsmobile Delta 88 that costs $5,400 to a loaded new 2000 Buick LeSabre that sold for $30,000 to a 2004 hybrid Honda SUV that Barrow said sells for about $20,000 to $22,000, automobile prices have certainly come a long way, too. The Midwest factory supervisor, who bought that Oldsmobile Delta in 1976, made slightly less than $20,000 a year.

Despite the national automobile industry’s statistics showing that people work fewer hours in 2004 to be able to purchase a new car, many people are in the $20,000 to $30,000 salary range, and others are making less. Are average salaries commensurate with both used and new car prices? “You statistically determine if the salaries have kept pace by the hours of labor it takes to buy a new car,” Barrow said. “That’s how it’s done, and the fact is it’s easier to buy a car today than it was 20 years ago.”

Easier – maybe. However, one of the factors (the other two are high gas prices and a cyclical decline in new vehicle sales) listed on the “Colorado Auto Outlook” report that could weaken the 2005 automobile market is “high consumer debt levels.”