The perfect storm
Below is a note from Joe Pistell, a knowledgeable and insightful marketing manager at a dealership in New York. The other article he refers to is located directly after this one.
A few months ago I wrote an article on your blog on how closely the Manheim Used Vehicle Auction Price index follows the Stock Market. If this correlation is still intact, in the near future, sellers should overwhelm buyers. Look out for lower prices ahead.
Just take a step back and look at what we all just went thru and let’s try to connect the dots…
Just a few months ago, Dealers everywhere went thru a violent Category 5 hurricane when gasoline blew thru $4.00 a gallon. The shock wave hit Main Street hard and sent SUV’s into a jaw-dropping free fall. Conversely, anything with a small engine went for stupid money. It was a snap reversal that caught us all flat footed. Only the brave dealers sold early, took their losses ASAP and re-bought SUV’s lower.
The unluckiest dealers were the ones that held on in hopes for a turn. Weeks and weeks passed with no change in sight. For many, they finally threw in their towel, took their SUV losses near the bottom and bought 4 cyl. Autos. Ouch.
Fast forward the clocks less than 90 days from that $4 gasoline hurricane and we’re in yet another Cat5 hurricane. This time we’re up to our armpits in a world wide credit crisis that has led to stock market crash not seen in a hundred years. It has everyone frozen in a trance. Last week, GM’s stock price was at $4.50, a 60 year low. Ford has become a penny stock, GM and Chrysler are rumored to be in merger talks. I say they’re in merger talks as an insurance plan to become “too big to fail”. It’s all over the news, you can’t avoid it. While this “credit crisis” hurricane passes over us, Crude oil has fallen nearly 50% and no one cares!
Anyway you look at it; our market place looks like two Category 5 hurricanes went thru it. In its wake, this perfect storm’s 1 – 2 punch has put many dealers operations into serious or guarded condition. Any dealer on life support will convert their used inventory into cash. Most will turn to the web and slash and burn YOUR market and take any offer that they need to survive. Others won’t have the luxury of waiting for a retail offer; they’ll simply turn to auction, collect the cash and run.
Prepare yourself for a temporary drop in used wholesale prices and keep your eyes on vAuto for rogue dealers stealing your market share. Defend your turf! Mark down your units to compete, then call your wholesalers to visit your cash starved competition.
This is my opinion based on a historical correlation of the S&P500 and the Manheim Used Vehicle Index. The correlation is well connected to long term trends. My projection of business conditions may or may not come to pass. I have to say I wouldn’t write this if I thought I was off the mark, but, we are talking about “seeing into the future” here. We’ll see how this all plays out. Just remember, it pays to be prepared.