Motorwerks BMW Client Adviser Jack Woodring stood by a 2011 M3 Convertible in the BMW dealership on American Blvd. in Bloomington.
Joey Mcleister, Star Tribune
Wheeling & Dealing
- Article by: KATY READ
- Star Tribune
- November 28, 2011 - 5:32 PM
How is the auto industry faring in the shaky economy? Depends on whom you ask.
Talk to Lacey Plache, chief economist for Edmunds.com, an industry research firm, and you'll hear the bad news. The picture didn't start out grim: Analysts initially projected an optimistic 12.9 million in new car sales in the United States this year -- a marked improvement over 2010's 11.5 million, though still far from the 16 million a year that was typical before the recession. Sales were climbing for all but Japanese cars, still in short supply as Japanese plants recovered from the March earthquake, but they were also expected to rebound by the end of the year.
But when the recovery seemed to stall following this summer's debt-ceiling crisis and other bad economic news, consumers got nervous. Plache scaled back the projection to 12.6 million cars for the year.
"If businesses aren't hiring and jobs aren't growing, it puts consumers on alert," Plache said. "They put big purchases on hold."
Talk to dealers, though, and the outlook is considerably brighter. Karl Schmidt, chief operating officer for the Minnetonka-based Morrie's Automotive Group, said consumers "are not freaking out anymore." Business has been so good that Schmidt said he feels guilty discussing it with people in industries that are still struggling.
"It's a fun time in our business," Schmidt said. "I can see it in my people - they're starting to do little remodeling projects in their homes ... take the family vacation they've been waiting for."
Schmidt acknowledged that the apparent contradiction between analyst projections and dealers' perspective seems "a bit of a disconnect." Jim Cain, Detroit-based spokesperson for General Motors of North America, agreed. In August, GM's year-to-date sales were up about 17 percent over 2010. Cain quoted projections of 13 million new-car sales nationally this year, above even Plache's initial optimistic forecast.
"It's really interesting what's going on right now because you have sentiment and confidence at very low levels, at pit of recession levels," Cain said. "Yet you have relatively strong car sales."
Nobody expects to return anytime soon to the high-rolling pre-recession years. Back when stocks and real estate were booming, Plache said, "people felt rich," and buyers of nice houses might reason that they need nice cars to go with them. Consumers bought 17.3 million new cars in 2000. Sales fell a bit in the early 2000s, but were still at around 16 million by mid-decade.
Then the recession hit, and the industry plunged to a 30-year low: selling just 10.4 million new cars in 2009.
"What we're really doing is we're climbing up off the lows," Cain said.
It's slow going. Shaken consumers have developed more frugal habits. "There's a new austerity that's come into play," Plache said. Car owners are holding onto their vehicles longer -- about four and a half years on average, according to research firm R.L. Polk. The average age of American cars on the road is nearly 11 years, compared to 8.5 years in the mid-1990s, though that's partly because today's cars are better made and last longer.
But if the whole car sales pie is smaller now, it's being divided among fewer sellers. Car companies undertook "a lot of really painful restructuring" in order to stay profitable, Cain said. Thousands of dealerships closed. Now the survivors are starting to see a turnaround.
"General Motors, in fact, has been announcing investments in our facilities to expand production or to upgrade equipment, and we've been announcing new jobs," Cain said.
For those ready to buy, "it's actually a pretty good time to buy a car," he said. Credit, tight for a few years, has become more readily available, and interest rates are low. Used cars are in short supply, because production dropped for a few years and now individual owners and rental companies are hanging onto vehicles longer. That has boosted the value of trade-ins.
Some buyers, combining a decent trade-in with a lower-interest loan, Schmidt said, find they can finance new cars without much increase in their monthly payment. "With far more frequency, we're telling people you can probably trade and lower your payment," Schmidt said. "It's crazy, but it happens."
Fuel efficiency is important to buyers. Sales of small and mid-size cars are up from last year, while sales of large cars have plummeted. Automakers, for their part, are making nicer small cars that present a more appealing choice.
"You can buy a fuel-efficient vehicle and not give up anything in terms of style, comfort and technology," Cain said.
And some austerity-weary buyers are ready to splurge, according to Jack Woodring of Motorwerks BMW in Bloomington. In September, year-to-date sales of luxury vehicles were up about 2 percent over last year. "People want to buy something substantial that's going to make them feel good, that's going to excite them when they get in it every day," Woodring said.
Katy Read • 612-673-4583
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