Wed June 22, 2011
Auto Industry Adjusts To New Normal: Low Sales
The U.S. auto market is slowly rebounding. But even as sales increase, they're still not at the peaks hit 10 years ago. In 2000 and 2001, more than 17 million automobiles were sold in America. Last year, just under 12 million were sold.
But many analysts, dealers and executives believe the industry is actually healthier selling far fewer cars.
"That 16 to 17 million sales level that we experienced was not a normal situation," says Jeremy Anwyl, CEO of car site Edmunds.com.
He says a lot of the factors that kept car sales high won't be seen again.
"We saw over 20 years of declining interest rates. Car companies were pouring more and more incentives into the marketplace," Anwyl says. "A lot of the appreciation in housing was being taken out by consumers with second loans, and then used to buy cars."
And because of work rules, it was often cheaper for car companies to pump out cars than to slow down production. That produced extra vehicles, which were then sold at rock-bottom low prices.
The economy has fundamentally changed since then, Anwyl says — and with it, the auto industry.
Now, he sees "a more normal marketplace, where lenders are looking for 20 percent down, where interest rates are probably going to be climbing over the next five years, not declining. Getting up to 15, 16 million is going to require, really, a growth in population."
So why does it matter if you sell 17 million cars, rather than 12 million? Jobs. High sales volume creates jobs at the parts supplier, the factory, the transportation companies that ship cars, and the dealers that sell them.
Tammy Darvish runs car dealerships in Florida, Maryland and Virginia. When asked how many dealerships she runs, Darvish pauses to count them up. Finally, she arrives at an answer: 31 franchises in 21 locations.
Darvish says she's not putting up the sales numbers she did a few years ago.
"We're probably much better businessmen and -women than we were three years ago," she says. "We're paying a whole lot more attention to expenses, expense control, collaborating between all of our business partners."
When Darvish says collaborating with business partners, she means the car companies in Detroit.
"They spent years sort of jamming cars," she says. "There was a lot of pressure for us to carry inventory levels that were ridiculous. And then you're constantly in fire-sale mode to dump cars. And you're willing to take losses on them, just to get them off your inventory."
Many car dealers say the restructuring in Detroit has affected the whole industry.
Huddy Hyman is also a car dealer in Virginia. He says he has streamlined his business, but he has no plans to go on a hiring spree when sales really pick up, as he believes they will.
"You may not see 17 million, but you may see a real, real healthy 14, 15 million new-car sales," he says. "And the way people operate today versus the way they operated four or five years ago, they're going to say, 'We can really make a good profit at that. It'll be better for us.' "
Hyman says he just hopes the auto industry doesn't forget the lesson it just finished learning.