Last updated Monday, March 14, 2011

A Healthy Spring Market
I guess it's no surprise that we are experiencing a very healthy spring market. There is a general shortage of new vehicles available(a condition not likely to change for some time), an undersupply of used vehicles (ditto) and a strong retail appetite among those many consumers who have put off replacing or adding vehicles in the aftermath of our recent economic difficulties.

Our consultants tell us the activity in the auction lanes is extraordinary as dealers search hard to find and capture reasonable inventory. That means not only generally higher prices but also forgiveness and flexibility in many areas not often compromised: condition, color, equipment, mileage, often even make, model, and segment. And when the "right" vehicle shows up, the result is almost always a feeding frenzy. Lot's of quizzical looks among spectator dealers wondering what the winner is going to do with that car considering what was just paid for it. Not to mention the look of the seller up on the block working so hard not to break out in a smile.

Higher Fuel Prices...But Far Fewer Trucks
The one mitigating factor that has to be watched carefully is the specter of an impending fuel price spike. 2008 is not that far away, and though most dealers have very short memories, pain is a great motivator and most of us experienced some pretty severe pain as gasoline reached $4/gallon in that not so distant past. There is already some evidence that fear of such an eventuality is affecting the most predictable segments. Activity around full-size domestic SUVs is restrained and is likely to get more so if gas prices continue to rise. They are still saleable for reasonable money but are certainly not experiencing the activity most of the rest of the market is experiencing. Were it not for the overall lack of supply in that segment due to the collapse of new vehicle sales of full-size domestic SUVs in the aftermath of the '08 fuel price spike (just ask, GM, Ford, and Chrysler) things would probably be worse in that segment, and that lack of supply may cushion the fall of those vehicles if fuel prices continue to climb. Or maybe we will revisit a time when a Toyota Rav-4 is worth more than a comparable Chevy Tahoe LT.

Prius Leading Economy Pack
Of course as fuel prices rise so do the prices of smaller, more fuel efficient cars and trucks. That is already happening, and happening rapidly among the stars of those segments. Currently leading the pack, as it did during 2008, is the Toyota Prius which has already jumped in value, seemingly anticipating $4 gasoline. Are we headed for another market where a Prius is worth more than a Cadillac DTS? That remains to be seen, but we are seeing what may be the front edge of such a market. Dealers are being cautious with gas-guzzling SUVs and trucks and beginning to show signs of recklessness chasing the more desirable economy vehicles. Because the supply situation is quite different than in 2008 - many fewer gas-guzzling vehicles and many more fuel efficient vehicles available, both new and used - we don't foresee a return to the craziness of 2008 unless fuel prices get extreme.

As expected in the spring, sport coupes and convertibles are strengthening. The luxury market is quite stable for the moment as well, something of a change from its steady decline through most of 2010. Exceptional vehicles are bringing exceptional prices. Good vehicles are bringing very good prices. Average vehicles are bringing good prices. Spring is definitely in the air.

Dan Galves