Market Conditions 01/02

Welcome to the New Year and the new market. As you know, the fall market was characterized by uncertainty and confusion, with dealers exercising a great deal of caution in the face of very unusual circumstances. Our unique location in the heart of the largest wholesale complex gave us the immediate feedback necessary to react to these unusual times. Fortunately, December brought some needed stability and strength to this difficult October/November market. Prices were definitely up and demand steady as many consumers took advantage of lower used vehicle prices depressed by a combination of 0% financing on new vehicles and an uncertain economic and political situation.

People are obviously feeling more settled now and we can look forward to the general strengthening of the market we are used to seeing this time of year. Many sport coupes and convertibles have already begun to strengthen (Corvettes and Mustang GTs, for example) as Spring approaches, and we can expect that trend to continue. Recent Spring markets have been a bit disappointing: solid, but not spectacular. We think that 2002 will follow that pattern, although a lack of fresh trades due to the large number of new vehicle buyers already taken out of the market by the post September 11th incentives may result in fewer trades and a stronger market. Remember that those vehicles coming off lease in high volume – mostly model year 1999s now – will continue to suffer in the marketplace. 1998 models - much scarcer now and in a desirable price range - should hold their value. 1997 and older should do likewise with the caution that as mileage pushes the envelope of consumer acceptability these older vehicles lose value rapidly. Of course the really popular imports are less susceptible to mileage devaluations.

Specifically, high-end imports have rebounded significantly from a very weak late Fall/early Winter. Some of this strength may be explained by slim new vehicle inventories that many dealers are experiencing after a very strong December. This includes the high-end SUVs that are holding up well in the face of a fair supply. We think this will continue as we head towards Spring.

Domestics are strengthening as well, lead by full and medium size cars. Small cars and most domestic SUVs are less responsive to the improving market, probably because they are plentiful, but they are no longer declining. Pick-up trucks are generally strong, especially 4x4s that are well equipped. What else is new!

High mileage vehicles are the one segment of the market that seem to be lagging behind the upswing we are experiencing. Unless you are dealing with a ‘hot’ vehicle, taking the full deduction for mileage is appropriate.

Be very careful of those late model vehicles that have been over-valued because of low supply/high demand. Supply is fast catching up with demand on many of those vehicles and their value can decline rapidly. Mercedes CLK 320 and 430 Cabriolets are experiencing large price adjustments as the market tries to find appropriate pricing now that supply has caught up with demand. Right now that is a very unstable market that we expect will sort itself out as the weather improves. In the meantime, we will remove pricing from those vehicles to reflect the instability and encourage those dealing with such vehicles to proceed with caution.

In general, there is a great deal of optimism out there and for the time being, at least, the market is supporting it. The activity is very strong and there are a limited number of vehicles available. Barring unforeseen circumstances, we don’t expect that to change for a while. Enjoy it while you can.