AUGUST 20, 2018 13 OPINION E D I T O R I A L S TA F F 313-446-0463 Email autonews@crain.com Website autonews.com Keith E. Crain Editor-in-Chief Automotive News encourages industry leaders to address our readers directly. To submit an opinion piece, email Print Editor Richard Johnson at rjohnson@crain.com. KC Crain Group Publisher Publisher jstein@crain.com Jason Stein A sizzling summer for vehicle prices A DETROIT 313-446-0463 Fax: 313-446-0383 s spring turned to summer, used-car prices began to heat up. Without a big off-lease vehicles going to auction. Lack of inventory against strong demand reinforces the perception that the market has an inventory problem.
Scarcity encourages buyers to act faster and accept higher prices, extending the demand-supply imbalance. strength along with declining discounts and stagnant incentives. Tis is an odd time of year to see less discounting, as usually the model year changeover brings bigger incentives and more discounting to move the older models. But stronger retail demand against limited supply enables manufacturers to trim incentives and discounts. 1155 Gratiot Ave. Detroit, MI 48207-2997 extremely rare for used cars to appreciate like this during summer.
Yet, our weekly price index shows the most-sold vintage of vehicles at Manheim — 3-year- old vehicles — are worth 2 percent more than they were just eight weeks ago. shock like last year’s hurricanes, it is Dave Versical Director, Editorial Operations dversical@crain.com Richard Johnson Editor, Automotive News - Print Dealers are not buying irrationally. Retail demand is causing this situation. We estimate used-vehicle sales increased 3 percent year over year in July, with one fewer selling day. Te annualized pace of used-vehicle sales is up 1 percent over last year to 39.5 million, a new peak for this expansion period.
We estimate the July used SAAR at 39.2 million, the strongest July in six years. Managing Editor Krishnan M. Anantharaman rjohnson@crain.com Mary Beth Vander Schaaf On the used side, peak wholesale volumes are timed for spring, not summer. Rental car companies are in peak summer usage months, not an ideal time to sell off fleet. Fleet companies are likely now seeing less attractive pricing given the stronger retail demand. Te most flexible source of wholesale supply comes from finance companies offering lease pull-ahead programs. News Editor Sharon Silke Carty Tink about this:
A depreciating asset is worth 2 percent more than eight weeks ago, when normally it would have lost about 1 percent of value. News Editor Nick Bunkley News Editor Hannah Lutz Te Manheim Index set a record in July. Te index is based on all vehicles sold at Manheim and is the best indicator of what dealers are paying for used vehicles. F&I Editor Omari Gardner News/Copy Editor COPY EDITORS: Amy Butters, Jonathan Smoke is chief economist at Cox Automotive. Tis spring, most of the strength in used-car prices was in affordable segments — compact and midsize cars. Te more affordable segments still see the strongest performance, but the summer surge is a tide lifting nearly all boats.
Across segments, only sports cars have not had an increase in their 3-year-old weekly price index over the last eight weeks. Tom Fetters, Elizabeth Hardy Te robust demand for used cars is partly because of a strong economy, with mounting affordability challenges for the consumer favoring growth in used- vehicle sales at the expense of new. But that demand driver isn’t new. Tese conditions have supported strong used-vehicle prices for more than a year. Steve Massie Design Director Te record bested the one set in October at the peak of the replacement demand frenzy after hurricanes Harvey and Irma. Tis time, no natural disaster has wiped out supply and created replacement demand.
Shiraz Ahmed Assistant Editor, Mobility REPORTERS: Vince Bond Jr., Melissa Burden, Jackie Charniga, Michael Martinez, Richard Truett, Larry P. Vellequette, Jack Walsworth, Tim Good Graphics/Copy Editor Tis trend can’t last long, but it may persist through summer and early fall until the tariff threat is resolved and/or negative economic news occurs. Even in the absence of a change in politics or the economy, price increases cannot go on forever as eventually the market will reach a breaking point for payment affordability. Generally, prices increase when a demand- supply imbalance occurs.
Even though higher prices should encourage an increase in wholesale supply, at this time of year and at this point in the auto cycle, wholesale supply cannot increase enough to accommodate. Given that the situation is fundamentally caused by a surge in demand, higher prices make matters worse and further reduce wholesale supplies. Mary Raetz Director, Automotive News Data Center Michael Wayland Only one event happened close to when used- car prices started to defy gravity: President Donald Trump’s announcement of a proposed 25 percent tariff on imported vehicles and parts.
Researcher Dan Jones, Office Manager Kristen Pantalena, Executive Assistant Heather Rowe Buy now While used retail sales will peak soon, we expect they will plateau at the peak and not decline for at least a year. Tat means demand should be consistent once the sense of urgency calms down. Ten supply flows will have a greater impact on pricing. Supply will likely increase marginally leading to faster depreciation. ATLANTA Amy Wilson/ Retail Editor 678-732-9603, awilson@crain.com Te used-vehicle market is adjusting for the possibility of higher prices.
Tese higher prices and the related declining supply create a psychological feedback loop for consumers and dealers, encouraging buying now with the expectation that prices may be higher later. Urvaksh Karkaria/ Reporter 904-422-5205, ukarkaria@crain.com Demand-supply imbalance DALLAS Laurence Iliff/ Reporter 469-562-8228, lIliff@crain.com Higher prices lead to a higher probability that leased vehicles at maturity are worth more than their contract value. Te consumer and/or dealer is more likely to buy the vehicle, resulting in fewer When the market reaches the point that supply is more in balance, the faster depreciation should boost sales volumes, not hurt them.
Te demand-supply imbalance is not limited to used. We see evidence of new-vehicle price NASHVILLE Lindsay Chappell/ News Editor 615-750-5990 lchappell@crain.com MPG retreat will cost industry jobs PORTLAND, ORE. Edward Niedermeyer/ Reporter T 541-520-5622 eniedermeyer@crain.com he Trump administration’s recommendation that America slam the brakes on improving pollution and fuel economy standards for cars and trucks will put our nation’s automotive industry at risk. that will emerge after 2020.” Te Trump administration’s proposal calls for freezing the standards in 2020. Tis proposal seems completely disconnected from what is happening in the industry. jobs.
Researchers at Indiana University looked at the impact of fuel-efficiency standards now on the books and estimated that investment in innovation could increase jobs by between 200,000 and 375,000 in 2025, and add between $138 billion to $240 billion in GDP between 2017 and 2025. SHANGHAI Yang Jian/ China Correspondent yangjian1026@gmail.com Especially in an age when the rest of the world is speeding toward cleaner cars and the automobile market is increasingly global, weakening fuel economy standards would make the U.S. automotive industry less competitive and cost a lot of Americans their jobs.
Since 2012, when the standards were established, the pace of technological change has TOKYO Hans Greimel/ Asia Editor hgreimel@crain.com Yurakucho Denki Bldg., 20th Floor +81-3-3828-9060 Fax: +81-3-3828-9061 accelerated. Companies such as Volvo and Jaguar Land Rover have announced plans to never build a car without some level of electrification in the powertrain. In Europe and China, the vast preponderance of new cars sold in 2020 will have some level of mild hybridization.
At Calstart, our 185-plus member companies include vehicle manufacturers, automotive suppliers, investors and fuel providers, and they all understand the large and growing global opportunity that clean transportation technology represents. When we asked major automotive suppliers about the existing national fuel economy standards, four out of five said the current strong standards, which carry through the 2025 model year, should be maintained or strengthened. 1-7-1 Yurakucho Chiyoda-ku, Tokyo 100-0006, Japan These days, any automaker that wants to ensure success has to offer cleaner, more efficient vehicles that can compete on the world stage.
TURIN Luca Ciferri/ Europe Editor Automotive suppliers would be hit especially hard. Tey employ twice as many Americans as the auto manufacturers themselves and have invested heavily in a more fuel- efficient future that would be delivered by the current federal vehicle emissions and efficiency standards. lciferri@crain.com +39-011-96-96-820 Fax: +39-011-96-96-443 U.S. carmakers have had a good run of strong annual sales and profit numbers over the past several years, even as the cars, trucks and SUVs they make have become increasingly fuel-efficient. Tat makes sense: Who wants to drive a vehicle that guzzles more gas? 202-434-8717 ekulisch@crain.com 1200 G St.
NW, Suite 800, Room 859 WASHINGTON Eric Kulisch/ Reporter John Boesel is CEO of the nonprofit automotive technology industry group Calstart. autonews.com Philip Nussel/ Editor, Automotive News Online pnussel@crain.com, 313-446-0373 Washington, DC 20005 For example, Denso is spending $1 billion to turn a Tennessee facility into a major source of components for electric, hybrid and autonomous cars, allowing the company to switch production of key product lines from Japan to the U.S. BorgWarner is expanding into EV and hybrid parts, making two acquisitions worth about $1.3 billion to develop products for electric powertrains.
Bosch is investing $450 million per year to develop EV components and technologies. Tese days, any automaker that wants to ensure success has to offer cleaner, more efficient vehicles that can compete on the world stage. Strong, consistent standards create a level playing field and help them do this. Unraveling existing standards creates chaos and creates business uncertainty, undermining investments and long- term planning. David Phillips Managing Editor, Automotive News Online Tey understand that consistent and far-sighted miles-per-gallon targets help grow companies and the economy, and create jobs. And they don’t want a rollback.
Victor Galvan/ Web Editor vgalvan@crain.com, 313-446-0345 AUTOMOTIVE NEWS TV Tom Worobec/ Editor and Anchor Te auto manufacturers and suppliers want to create jobs and compete globally, and they want their country to help them succeed. Tey want the U.S. to be a leader, not a laggard. Tey know the future is about innovation and vehicle efficiency. Tey know that’s good for business — and good for America, as well. Leslie J. Allen/ Managing Editor Jennifer Vuong/ Anchor and Producer, First Shift REPORTERS: China Haley, Angelina Czarnecki An article last month in Automotive News quotes Sujit Jain, president of Bosch’s Powertrain Solutions North America business, as saying:
“We aim to lead the global market for electromobility When standards are set at aggressive but attainable levels — like the targets now on the chopping block — they spur technological innovation, catalyze competitiveness and support