Last updated Wednesday, February 22, 2006

We said that we expected the beginning of 2006 to follow the pattern of late 2005, a strong market as a result of an unusual scarcity of vehicles rather than strong consumer demand, and that is the way things have been shaping up. Good vehicles are very scarce and are doing well, exceptional vehicles are scarcer and do even better.

Those conditions prevail pretty much throughout all segments of the market. Vehicles under $8000 are particularly strong as dealers are finding it difficult to maintain suitable inventory levels in the one segment of the market that has a high degree of consumer demand. Several dealers have commented on how much they got for or had to pay for relatively normal vehicles in that price range. As usual, it is the Japanese compacts that dominate that segment, but domestic vehicles, very scarce in this part of the country, are performing well also.

Of course convertibles and sport coupes are responding well to the anticipation of better weather and the general optimism that accompanies the coming of spring. Corvettes, BMW 3-series, and Porsche Boxsters are the segment leaders closely followed by most of the other similar vehicles. Those of you who pay close attention will have noticed some significant price increases in the book among those vehicles as well as in many other segments of the market.

SUVs, severely beaten down as a result of the increased gasoline prices we experienced last year, have rebounded significantly. Equipment and trim level packages are particularly important in these vehicles. DVD and navigation seem to be two options that are among the most desirable and can create unusual activity among buyers chasing those vehicles. Conversely, trying to sell an Explorer or Expedition without at least an XLT package and preferably an Eddie Bauer or Limited package or a Tahoe without leather is a difficult task indeed. We have recently overhauled some of the adds and deducts in the books to reflect those factors as well.

The one segment of the market that is not experiencing scarcity in general is the European and, to a lesser degree, Asian luxury vehicles. As you might expect there is some ongoing softening of the market among those vehicles.

Dan Galves