Buying new: Car sales climbing again

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Springs car dealers are feeling more optimistic after seeing a surge in sales.
New car registrations in El Paso County are up 24 percent so far this year.

Dealers of new cars in Colorado Springs aren’t using the “recession” word anymore. Instead, they’re busier than they have been in years.

New car registrations in El Paso County are up 24 percent year-to-date over 2011, according to the Colorado Springs Automobile Dealers Association. Statewide registrations are up 26 percent.

That’s welcome news for dealers who have had some lean years through the recession when bailouts and even the tsunami in Japan interfered with getting new inventory.

“We’ve definitely seen a big uptick in sales,” said David Perkins, assistant operations manager for Perkins Motors at 1205 Motor City Drive.

It’s hard to pin the increased sales on a single factor. People are gravitating toward new cars over used ones for various reasons, from better gas mileage, to pent-up demand after years of putting off car buying, to the short supply and increased cost of used cars.

Difficult decade

It’s been a hard decade for new car sales, said Tim Jackson, president of the Colorado Automobile Dealers Association. New car registrations spiked in 2000, when there were 208,000 statewide.

They declined almost every year after that, Jackson said, bottoming out in 2009 at 104,000 — a full half of what they were in their glory days.

In El Paso County, new car sales dropped 47 percent from 27,032 in 2002 to 14,341 in 2009, according to Ann Winslow, president of the Colorado Springs Automobile Dealers Association and vice president of Winslow BMW.

“There was a little hiccup in 2005,” Jackson said. “That was the advent of employee pricing.”

Other than that, there haven’t been a lot of new cars driving off lots the past 10 to 12 years. That means the cars on the road are older than they’ve ever been.

The average age of today’s fleet of automobiles is 11 years. That’s up from 8.9 years in 2002, Jackson said.

That steady trend was exacerbated the past four years by the recession, as people who might have otherwise bought new cars opted to keep driving what they had through uncertain financial times.

“We’ve developed a lot of pent-up demand through all of this,” Jackson said.

Winslow says she suspects that pent-up demand is behind increased sales now and will continue to push them higher as more and more people decide to trade out their aging clunkers for new rides.

Other factors

One reason cars today are older than they’ve ever been is pretty simple — they last longer.

“The quality across the board, across all makes and models, has improved,” Winslow said.

Perkins said the Chevrolets, Jeeps and Dodges on their lots are noticeably better cars than the ones the manufacturers were churning out before the government bailout in 2008.

There are 16 new or significantly improved models on lots today, he said, and they’ve been getting better reviews and higher marks on tests and surveys.

“I think that’s played a big role in our traffic,” Perkins said. “The brand image has improved.”

But Glenn Hamill, sales manager at Phil Long Mercedes, says the quality of his cars has also improved considerably. Two years ago the manufacturer extended its warranty to 135,000 miles for the whole car, Hamill said.

“They can afford to do it because the cars aren’t breaking ,” Hamill said. “They’re built much better and they can go much farther.”

Customers also are happy to buy new and more expensive cars with longer loan-payback terms now because they expect the car to last, Hamill said.

There are plenty of 72-month loans today, Jackson said. That’s six years. Banks never used to go out that far with auto loans, largely because cars weren’t guaranteed to last that long and banks had to protect their investments.

That’s all changed. And it’s easier to get financing now.

“Three years ago, it was tough to get deals through,” Perkins said. “The banks cut back how much they were doing and how deep they were going.”

But the lending has come around and it’s easier to obtain. Lenders are even considering higher-risk buyers with lower credit scores, he said.

Used car prices

Of course, the longer someone has a loan on a car and the longer it lasts, the longer it takes them to buy a new car.

It also keeps their old cars from popping back onto the market, which drives up the cost of a used car and makes a new car look more attractive.

That’s especially true for late-model used cars, which were impacted by manufacturing slowdowns because of the economy and holdups in transportation because of the tsunami in Japan.

“Those prices are approaching that of a new car,” Winslow said.

Perkins said he’s had plenty of people come in looking for a used car and decide to go with a new one instead.

“The used car market a couple years ago — the prices all jumped way up,” he said.

He suspects it could be because rental car companies weren’t able to replace their fleets with new cars after the tsunami in Japan, so they held on to the cars they had for more time and kept late-model used vehicles out of the market.

It has been a simple issue of supply and demand since then.

“That made the one- to two-year-old vehicles look much closer in price to the new ones,” Perkins said.

Hamill said it’s also helped his lease activity. He talked about a customer coming in the other day looking for a used car she could buy with cash — $15,000. Instead of getting an old car, she drove away in a 2013 Mercedes with a pre-paid, three-year lease.

Leasing has gained popularity nationally. It fell out of favor for a while, Winslow said.

It’s coming back slowly at Perkins. But Hamill said it was always a big part of Mercedes’ business and makes up more than half of its new car deals. Luxury brands frequently have higher rates of lease deals than sales because the cost to own the car is higher.

“A lot of young people, though, they’re realizing they’ll always have a car payment anyway,” Hamill said. “So, they’re thinking, why not have a really nice new car?”

Colorado
Year New car registrations
2000 208,000
2009 104,000
County
Year New car registrations
2002 27,032
2009 14,341
2011 17,720
Through July
2011 9,316
2012 12,221