Last updated Friday, February 1, 2008

As we said a couple of weeks ago, we would report back on the unusually weak market conditions we were experiencing in mid-January as the “spring market” continued to reveal itself – or not. Regretfully, thus far the market has continued to be rocky during a period of the year when it is typically at its strongest. Hardest hit continues to be the European luxury car segment (Audi, Bmw, Jaguar, Mercedes, Volvo*, Saab*) followed closely by the Asian luxury segment and larger pick-ups and SUVs of all makes. It is highly unusual for book values to drop significantly and on such a wide range of vehicles at this time of year, but there is no denying the validity of those adjustments in the current market and we suspect that we have not yet hit a stabilization level for those particular market segments. We do expect the pace of the market erosion to slow down as we move further into spring, but given the large number of vehicles available in these segments and the weak demand, where it will stop is anybody’s guess at the moment.

Even the usually stable Japanese imports are experiencing atypical erosion in a spring market - late models in particular - though not nearly to the extent of the luxury segment. Still, very unusual for this time of year and will probably continue to drop at a slow pace.

What’s holding up well? Good domestic vehicles, economy vehicles, and good vehicles in the lower price ranges. But good domestics are scarce, especially in the northeast where new vehicle sales are so heavily biased toward imports. In addition, the public is beginning to recognize that the domestic manufacturers are building solid vehicles that rival the imports in quality and often surpass them in value (a 2006 Chevy Cobalt is about $4500 cheaper than a comparable Honda Civic, a Mercury Montego about $4000 cheaper than a comparable Honda Accord, etc.). Economy vehicles have, of course, strengthened as the price of gas has increased. Diesels are pretty much off the charts compared to their gasoline burning counterparts. As manufacturers increase rebates and incentives in an effort to spur new vehicle sales, the market for “price range vehicles” that can undercut new vehicle monthly payments significantly increases as the supply decreases.

That is about the limits of the good news for the moment. Even those sport coupes and convertibles that are generally so strong this time of year are lukewarm at best for the moment.

We will make it a point to keep even more current than usual with the market conditions updates as this unusual market unfolds.

Dan Galves

*Questionably “European,” questionably “luxury,” but very weak nevertheless.