Current Market Conditions  
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Last updated Wednesday, July 5, 2006

Given the current market conditions, but certainly not the weather, one could easily be fooled into thinking it is November rather than July. With the exception of a limited group of vehicles - older, fuel efficient cars, smaller SUVs, healthy vehicles that can be retailed for under $10,000, those vehicles that are exceptional by virtue of some combination of scarcity, mileage, equipment, color, condition – there is very limited demand and we are seeing the “under book” mentality that is usually reserved for late fall, early winter. No matter how reasonable the book is, they want to buy for significantly less. The common feeling among dealers is confusion.

We don’t see any reason for that to change in the near future. In spite of what is being billed as a new round of heavy rebates and incentives, in particular among the domestic manufacturers, we are not seeing the same kind of buying frenzy that greeted the “employee pricing” deals of last summer. There seems to be general apathy among the buying public and it appears to apply to both new and used vehicles. There is a slim supply of vehicles, especially good ones, and perhaps even less demand.

Of course gasoline prices have remained relatively high and are an issue. However, the larger SUVs and gas guzzlers in general have already experienced healthy adjustments to their value and they seem to have stabilized to a large degree. The rate of decline has leveled off, and we think that will be the trend for the near future. Large pick-ups have experienced much the same thing.

The luxury car segment has been steadily declining for most of this year and has continued to do so in recent weeks. We expect that trend to continue. Unless there is an export market for a particular vehicle, and that market is somewhat unpredictable and sometimes difficult to access, those cars have too much supply which tends to overwhelm the demand. Thus their weakness in the market. The fact is, there are some relative bargains in that market compared to previous years. At some point consumers may realize that and demand may begin to catch up with supply. Until then, however, that is a market segment that demands caution.

Sport coupes and convertibles have been experiencing a steady decline for several weeks now. Pretty much all the BMW, Mercedes, Volvo, Audi, Jaguar – the European luxury group – convertibles have been hit quite heavily. The Asian group has declined less rapidly if at all. In general there is a smaller supply of those cars and we suppose that is the reason. We expect that trend will continue as well.

The strength in the market continues to be in the cheaper vehicles, especially in the fuel efficient more compact vehicles, whether cars or trucks or SUVs. Even those usually strong performers in the market, the Hondas and Toyotas of the vehicle world, have suffered erosion in the later model, more expensive categories. As their price points come down, their strength goes up. Even the domestic manufacturers are holding up quite well in those cheaper price points, particularly if they are lower mileage and good condition. The right Taurus or Impala and their ilk have good demand in the under $10,000 category.

We don’t expect things to change much in the near future and suspect that next months market conditions will be much the same.

Dan Galves