Last updated Monday, June 17, 2013

Frankly, we were a little concerned about the positions we had taken with respect to a delayed call of a spring market followed very closely by our report of a hastened ending to said market. But we feel like our positions have been vindicated by recent market trends. The spring market came and went as quickly as a spring shower and we feel like we are quickly moving into the long, steady "summer slog" that we are all too familiar with most years.

Market down across the board
With the oft-noted exception of pick-up trucks the market has weakened in all segments. The pick-ups have been the beneficiary of scarcity due to weak new truck, sales in recent years, the rebound in construction, reasonable fuel prices, and the continuing lure of the "Marlboro Man" image we are so fond of. Those reasonable fuel prices have had the opposite effect on the econo-cars, however, and that market has weakened considerably. There is no scarcity among the later model European and Asian luxury vehicles, mainstream midsize imports, full size SUVs, most crossovers, and they are beginning to erode consistently as well.

While there is currently some relative stability in the convertible and sport coupe segments, we think that will be short lived. Our experience is that most of the consumers who had a yen for such vehicles have already bought them and that fresh sales will decline rapidly. As will that segment.

Aggressive Deals Hurting Late-models
New vehicle manufacturers are aggressively re-engaging in market share battles, and rebates and incentives are strengthening. We are seeing significant softening in just about all later model segments as they are impacted by the aggressive tactics of manufacturers and dealers.

Price-range vehicles Immune
Good price-range vehicles have been relatively immune to the rest of the market and that continues to be the case. But we expect buyers to become increasingly picky even among those vehicles as we move through summer. Consumer demand will decrease as it usually does over the course of the summer and dealers will become more choosy with respect to the vehicles they chase. They will want fewer miles, better colors, more desirable options, and stronger condition. They will still pay up for those they chase, but they will chase fewer of them.

The same is true for the "exceptional" vehicles that have done so well in recent months. They will continue to do well because they are scarce, but dealers will become more demanding in their assessment of what qualifies as an exceptional vehicle and therefore warrants their particular attention in the lanes.

Normal Summer Declines Expected
It is clear that the market has changed/is changing. Most summers are characterized by steady declines as we move towards fall. Steady as opposed to the kind of drama we sometimes experience in the fall. Last year was something of an anomaly as pent up demand and increased consumer confidence resulted in an unusually stable summer market. We don't expect that to be the case this year.

Dan Galves



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