Last updated March 2013

We are hearing a lot of buzz about the market strengthening. We donít disagree entirely, but we do think that is an over-simplication of what is actually happening in and around the lanes. The market has been quite strong and seems to be strengthening further among those vehicles that are relatively scarce, either by virtue of their unusual combination of color, equipment, mileage, and condition or simply by their lack of volume. Vehicles that donít fit that description - that is, are not unusual or scarce - are not, in our opinion, strengthening. Stabilizing might be a better characterization, and that might be optimistic.

We donít see real strength among late model vehicles, basically 2010 and up, that are out there in any sort of volume. They may be recovering slowly from what was a pretty weak starting point, but we wouldnít characterize them as hot. Toyota Camry LEs, among the most abundant and popular cars in the market, are a good example. There are literally thousands of them available in the model years 2010 and newer. Not nearly so many, perhaps about 20% of the volume of the more recent vintages, in model years 2009 and older. So 2010 and up are not nearly as stridently pursued in the lanes as are 2009 and down. 2010 models and newer are warm at best and, in fact, bring very similar money with the same mileage. The fact that there are some aggressive incentives on new Camrys contributes to late model weakness as well. 2009 and older, on the other hand, can be quite strong and tend to get stronger as they get older.

This trend is evident wherever there is an abundance of late model product, incentives on new models, and scarcity of older examples largely due to a lack of new vehicle sales in 2008 and 2009 and older. Mercedes C300s provide a similar example among the introductory luxury models. There are about 5 times as many 2010 and 2011 C300s in the market as 2009 and 2008 models. The newer models are relatively ignored while the older models get aggressive play. 2008, models, being the first of the current generation of C300s, are particularly strong.

A good example among mid-level SUVs is a comparison between Lexus RX350s and Acura MDXs. The RX350 is more expensive new and is clearly more popular and in greater demand. Among 2010 models, however, there are about 18 RX350s available for every one MDX available. And similarly equipped the MDXs, because of their relative scarcity, bring significantly more money than the ever popular RXs.

So we are reluctant to declare the arrival of a spring market. There are definitely areas of strength and heated activity, largely determined by scarcity, either through sheer limited volume or by an unusual combination of factors the makes a particular vehicle stand apart from its more normal brethren. Price range vehicles, for instance, continue to be very strong and appear to be getting even stronger. Good ones are relatively scarce due to weak new vehicle sales during the height of the financial crisis. They are in demand and in relatively short supply. Higher end luxury models, however, though also relatively scarce because of weak sales in 2007,í08, and í09 are not particularly strong because of continued low levels of demand.

A lesson from Economics 101, the theory of supply and demand, applied once again. We think the market will continue to have pockets of real strength and relative weakness scattered throughout as we move into spring. It remains to be seen whether or not we will get to a point where the market will get truly hot and expand to all but a few minor segments. Thatís what a spring market used to look like.

Dan Galves



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