As someone once said, “records are meant to be broken”. While that is true, the auto industry set a new record in 2015, and eked out even more sales in 2016. Now comes 2017, and even though I am a glass half full kind of guy, I am a realist, also. I don’t see any way the auto industry can sustain the amazing pace of the past two years, but I think that might just be a good thing.
As I have been saying on the air for a while now, the incentive spending the automakers have been doing of late is just not sustainable. The incentive drops starting this month were not as severe as I thought they would be, but still quite a bit less than we saw in December in many cases. We will see some exceptions, particularly in passenger cars as people make the move to SUVs.
It is just my opinion, but this industry really needs to slow down a little at every level. Automakers can slow down the assembly process a little and the end result will be better vehicles rolling off the assembly line. Not only does this make for more loyal customers and better online reviews, it will cut their expense of paying warranty claims and hopefully slow the huge numbers of recalls.
At the dealership level, slowing down a little means spending more time with each customer helping him or her figure out what the best vehicle is for him or her, and how to best pay for the car of his or her dreams. This, too, is good for long-range customer satisfaction and repeat business.
A slower pace will also weed out some of the bad people in the car business, especially at the dealerships. A lot of people have gotten into the car business the past few years just to make a fast buck with no thoughts of making it a career. There is nothing easy about selling cars; the hours are long, there are not a lot of benefits, and there is not a lot of time off. The car business has been so good the lazy, short-term people could just skim off the top and take the easy deals that come their way, leaving more savvy buyers with a bad taste in their mouth.
There is a lot of uncertainty facing car buyers as we enter 2017. Interest rates are almost certain to rise this year, and we could see prices at the gas pump go up, which could cause a lot of people to trade out of pickups and SUVs, especially the large ones. That could hurt the values of those vehicles should the market get flooded. While trade values staying high has fueled the last two record years in the auto industry, we know more cars are coming off leases in 2017 than did in 2016, which could bring trade-in values down. When dealers truly need used vehicles for their lots, you get top dollar for your old vehicle.
I certainly don’t think the bottom is going to fall out of the industry. If I had to guess today, I’d say that sales will come in around 17.2 million in 2017, about 300,000 less than last year, but that is a number anybody in the car business would have popped champagne over just a few years back. With all the new vehicles we’ll see in 2017, I could eat these words and a new record could be broken.
Even a small drop in sales will keep 2017 a buyer’s market with good incentives, but the other benefits of a slight slowdown could make for a better auto industry for the car companies, the dealers, and the consumers.