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2007 NAIAS :: Detroit Auto Show :: Reviews + Interviews

It's a Whole New Game for Car Dealers

PHOTO BY JASON RZUCIDLO / AMERICAJR.com

Paul C. Taylor is the Chief Economist for the National Dealers Association in McLean, Virginia.

by Jason Rzucidlo
americajr@americajr.com

 


DETROIT -- Paul C. Taylor, Chief Economist for the National Dealers Association, spoke to the media inside the Detroit Free Press during the FACS conference. He mentioned how car dealerships will go through a series of changes and compared the U.S. market to Asia and Europe.

He said that motorists that are concerned with the price of gasoline are mostly driving used cars. Taylor noted that Americans have not given up their trucks and SUVs and moved entirely to smaller cars. Americans have decided to go for the smaller drivetrains instead. They made choices based on their needs. For example, crossover sales are up and SUV sales are down. Crossover vehicles look like sport utility vehicles but they are based on a car platform. Sales of large cars, vans and pickup trucks are down.

"People are tending to hold onto old cars as backups and are not driving SUVs to work," Taylor said.

Taylor added that many businesses that use pickup trucks adorned with their logos will have to switch to crossovers. Crossover will become the new automobile for small businesses and company cars. Sales of crossovers hit the 3 million mark between 2005 and 2006.

What will the future of the big three automakers look like? GM's market share is expected to fall from 26% to 24% by 2008. Ford will drop from 18% to 17% in that time period. The Big three on average will drop from 58.2% to 54.9% market share by 2008. Asia's market share is on the rise from 38.6% to 40.1%. Europe will also experience a slight increase from 5.1% to 5.6%.

Taylor reported that the Europe automotive market will be affected like the U.S. market. More companies will be moving in. There will no longer be a top three market. There will be a top six or seven manufacturers in a list of twenty or so.

Japanese automakers account for 60% of the world's new vehicle sales. The Detroit three automakers provide 55% of new vehicles. European manufacturers account for 57% of new car sales globally.

When it comes to used cars, the story is switched. The Big three companies take the lead with 32% of the used car sales globally. Japan and European manufacturers account for 25% of used car sales, according to Taylor.

How has dealership advertising changed? Car dealers are spending less on advertising over the last few years. In 2003, dealers purchased $8.5 billion of ads. In 2005, that number dropped to $7 billion. Dealers are spending more on TV and cable, internet and direct mail ads. However, they are spending less on newspapers and the radio. They are also willing to pay more to sponsor events, ads on billboards, ads on flyers, magazines and even some sponsor race cars. Dealers are more willing to spend their ads on newspaper display advertising that is located outside of the classified section.

"Expect to see more as where people are doing the reading," Taylor said. "Newspapers are linking classifieds to their websites."

He believes that the U.S. will lose 150 car dealership per year. That is the total number that will go out of business. Most of the dealers that will close are in rural areas. People will have to driver farther to showrooms to choose a vehicle. However, they will be able to drive less to get to a service station. For example, a dealer could operate several service stations within a certain radius from the showroom.

Taylor insists that dealers are optimistic about the future. Consumer confidence has improved after the start of the Iraq war. The nation's GDP (gross domestic product) is expected to be at around 2.5% this year. Unemployment is lower in the U.S. Michigan's unemployment is higher than most states right now.

In terms of the used car market, Americans are purchasing more cars with 6 cylinder engines. Prices of import used autos are down while domestics are going up. People are not as concerned with the price of gasoline because it has gone down in recent months. Taylor mentioned that consumers are purchasing used SUVs in recent months.

Sales of used cars are up in 2006 by 2.2%. The average price for a used car was $15,708. About one fourth of Ford dealers are not making money on new cars. The average price of a new car nationwide was $28,223. While all this moving is going on, the competition drives prices down for consumers. However, it increases the costs for manufacturers. There is no middle ground.

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PHOTO BY JASON RZUCIDLO / AMERICAJR.com

Paul C. Taylor speaks to the media inside the Detroit Free Press.

 

This page was last updated on Thu, January 11, 2007 0:11 AM

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