Strong car sales could mean fewer discounts

Rita Iannuzzi, of Smithtown, checks out a Hyundai

Rita Iannuzzi, of Smithtown, checks out a Hyundai while helping her mother shop Monday at Atlantic Auto Mall in West Islip. A new report says registration of new vehicles are up, showing that Long Islanders are in a vehicle-buying mood. (July 29, 2013) (Credit: Newsday / Jeffrey Basinger)

Carmakers and dealers are driving toward another new model year in the best shape since before the recession, with rising sales and truckloads of new product on the way.

For Long Island car buyers, though, rising demand could mean less generous discounts.

The 2014 model year officially begins Oct. 1, as the calender year 2013 moves toward a close with U.S. sales through August up 10 percent from a year earlier, according to the trade paper Automotive News. In August, sales ran at an annualized rate of about 16 million vehicles -- the highest since before the recession began in late 2007.


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On Long Island, sales through May, the latest local data available, ran 9 percent ahead of the same period last year, according to registration figures from R.L. Polk & Co., the Michigan-based auto data provider. If that trend continues, dealers probably will sell well over the 202,600 vehicles they sold in 2012. At the recession's bottom in 2009, only 150,000 cars were sold on Long Island.

At the 21-store Atlantic Auto Group, the Island's largest dealership chain, co-owner Michael Brown estimates his total sales by year's end at all locations will be about 10 percent above last year's. He said sales this year would have been higher had it not been for buyers replacing their cars in 2012 because they were destroyed by superstorm Sandy. Those sales otherwise might have occurred this year.

"I think 2014 could be a phenomenal year for us," Brown said. Among other factors, he cited a large number of cars leased in 2010 and 2011, as the industry recovery began, that are due to be returned to dealerships next year and will have to be replaced.

 

Old autos need replacingIndustry analysts attribute the sales gains this year to a palette of factors: improved consumer confidence from somewhat lower unemployment, job growth, and some recovery in home prices; low interest rates for car loans and leases; high gasoline prices that, while straining family budgets, also encourage purchases of new and more fuel-efficient vehicles; and an aged fleet due to purchases postponed during the 18-month recession.

The optimism for next year is based on expectations those trends will continue. The average car on American roads is more than 11 years old -- the highest age in recent memory. While a factor in the increasing age of cars is their growing reliability, their rising age still suggests that a lot of existing autos need replacing.

"There is such a backlog of old cars on the road that, even though sales have started to spike, it's not been enough to counterbalance it," said Karl Brauer, senior analyst with the Kelley Blue Book, a California-based vehicle valuation and information service.

Lee Certilman, owner of Nardy Honda in Smithtown, said he expects to record a 20 percent to 25 percent unit sales increase this year over last, mostly on the strength of the recently redesigned Accord and Civic. Honda is the Island's best-selling brand. "The 2013 Accord has been tremendous," Certilman said. "It has absolutely blown the doors off the previous one."

Kelley Blue Book is forecasting sales nationally of 15.6 million in calendar year 2014, and Brauer thinks the pre-recession peak of 16.9 million, in 2005, could be surpassed as early as 2015. "Even if it's not growing at the rate we'd all like it to be, at least the economy is not sinking any more," said Brauer.

Polk expects sales of about 16 million next year, but senior North American forecasting analyst Tom Libby doesn't expect a repeat of 2005 in the foreseeable future.

 

Economic worries lingerThere are some clouds on the horizon.

On Long Island, sales late last year and early this year were boosted by replacements of cars destroyed by superstorm Sandy. New registrations jumped 71 percent in November and 40 percent in December from 2011 levels, for example.

Further, a local economist notes that the economy's recovery from the recession, nationally and locally, continues to be painfully slow, with unemployment still high, wage growth weak and the full effects of federal "sequester" budget cuts yet to be felt.

"My sense is that there will not be a strong recovery," said associate economics professor Martin Melkonian of Hofstra University. "I think we are, at best, looking at stagnation and, at the worst, a double dip" recession. "That doesn't bode well for people making large expenditures on things like cars."

Kelley's Brauer notes also that many of the jobs being created post-recession are part-time or in lower-paying categories such as retailing. That's part of the reason, Brauer said, why some of the strongest sales gains have been in compact cars and compact SUVs rather than more expensive midsize and luxury models.

Rising interest rates could spell the end of zero-percent loans being offered by many dealers and manufacturers. "At some point those are no longer going to be offered, and those have been huge promotional activities and provided major financial savings for consumers," said Polk analyst Libby.

Brauer said sales of large pickup trucks, a high-volume segment of the market, could stall if rising interest rates choke off the new housing market. Many large pickups are purchased by construction trades people.

He also said that rebates and other sales incentives could become less generous if sales keep improving, but he pointed out that the industry remains hotly competitive. "Everybody is scrambling to maintain this sales pace," Brauer said. "That requires special financing and incentives."

Dealers said they expect help from their manufacturers in coping with the effects of higher interest rates. "It seems like the factory is going to continue to stay aggressive with financing and lease deals," said co-owner Scott Brown of Robert Chevrolet in Hicksville.

An array of new and redesigned models will be arriving in growing numbers in the coming year, and dealers are counting on them to help further stimulate sales.

One that's important for its potential sales volume is the redesigned Toyota Corolla, going on sale this month. Said Atlantic's Brown, "Corolla sales have an opportunity to go up by close to double."

Brauer and Libby also cite the Ford Fusion, redesigned for 2013 and being tweaked for 2014, as an important one for its role in Ford's strong sales growth this year -- 13 percent nationally through August and 27 percent on Long Island through May. Demand for the Fusion, which competes against midsize sedans like the Accord and Toyota Camry, is so strong that Ford is adding production capacity.

Less important for its sales volume than as an attention-getter for General Motors, both analysts say, is the redesigned 2014 Chevrolet Corvette, the iconic sports car, due in showrooms early next month. "The importance there is it's a real good reflection of the modern General Motors," said Brauer, who drove the car recently. "It doesn't have any major disappointments or Achilles heels."

Other significant new models cited by analysts include the new Jeep Cherokee, due at dealerships in the fall, sized and priced lower than the popular Grand Cherokee. Brauer said that given the growth in compact sport-utility vehicles, "the timing couldn't be much better."

In all, said Brauer, "I think there are more forces pushing us toward a continued sales increase than . . . forces pushing us back toward lower sales numbers."

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