Last updated Thursday, October 11, 2012

A Modest September Leads to 'Fall'
For the most part this September was relatively gentle compared to most years. We always expect declines in September as we move towards winter and the most severe downturns we usually experience over the course of a year. In fact, in most years a large part of a vehicle's yearly depreciation occurs from early September to early December. If depreciation occurred on a straight and steady line (as many not in the business think it does) that is, that vehicles depreciate x-dollars each day they age - you would expect that those fall months then would account for about 25% of a vehicle's yearly depreciation. In fact, they typically account for well over 50% of a vehicles yearly depreciation. And I do mean well over in many years.

This September was actually more 'dealer friendly' than is typical in most segments. The European and Asian luxury market continued to be the hardest hit grouping in the marketplace, even if it may have suffered less than is typical for this time of year.

How is October Shaping Up?
The question, then, is what to expect as we move through October. It is not a stretch to predict that declines will continue to occur. That will surely happen. We're wondering if the market will more closely resemble a relatively gentle September or make up for September's restraint with a particularly volatile October. We suspect it will fall somewhere in-between, but tilt toward the volatile side. On the upside, there is clearly some pent-up demand and an increase in consumer confidence in the economy as the stock market has recovered, housing is slightly improved, and we continue to slowly add jobs. There is still a relative scarcity of product although we don't feel that has had a significant impact in most segments. On the downside, the upcoming election cycle is sucking up a lot of the available oxygen and there is some real confusion about where the country (to say nothing about the rest of the world) is headed. We think that will have a dominating impact on the market in the near-term.

But we are confident some things won't change. The market is still supply/demand driven and good-to-exceptional vehicles will continue to be scarce and very salable. Medium mileage vehicles will continue to be readily available and weak in most segments. And European and Asian luxury vehicles will continue to be the segment most negatively affected by the realities of supply/demand economics. The truly exceptional ones will still do well while most of what's left will be at the mercy of bottom-feeders. There will be some "buys" out there.

Upcoming Election Diverting Attention?
We are still a bit surprised at the lack of reaction to rising fuel prices. They are talking $5 gasoline on the west coast and we are hearing very little about it for the moment. That would seem to be evidence of the upcoming election's oxygen sucking capacity. So far the impact has been relatively negligible. That might very well change post-election.

Dan Galves



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