Pub. 14 2015-2016 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 13 new jersey auto retailer W W W . N J C A R . O R G But predicting the course of the new vehicle market is not always as straightforward as it seems. Despite the concerns mentioned above, there are four main reasons to believe that the market still has some gas left in the tank. First, today’s newcars and trucks are filledwith an impressive array of advanced features, many of which were not even available five years ago. Examples include smart braking systems, lane-keeping technologies, night vision, heads-up displays, advanced connectivity options, and smartphone integration. These features can provide strong motivation for consumers to enter the new vehicle market. The average age of a vehicle on the road today exceeds 10 years old, and in many ways, this 10-year old car is antiquated, compared to a new vehicle. This is leading an increasing number of consumers to purchase a new car or truck because they want to, not because they need to (i.e., their old car is wearing out). The second reason to believe that the new vehicle market will avoid a significant slowdown is very low fuel prices. The common perception is that low gas prices give a boost to new vehicle sales by increasing household discretionary spending. Since consumers are spending less on gasoline, theyhavemoremoney to spendonother things, including new vehicles. No doubt, consumer confidence improves when spend- ing at the pump declines, and this does translate into higher spending for other goods and services. But lower gas prices are also stoking new vehicle sales by negating the primary disadvantage of owning a light truck- lower fuel economy than passenger cars. Over the years, con- sumers have demonstrated a clear preference to purchase light trucks. Cargo capacity, a higher driving position, and styling are primary drivers feeding demand for trucks, while lower fuel economy is the maindisadvantage. Low fuel prices negate this primary disadvantage. The third factor adding support to the new vehicle market is strong consumer affordability. Low interest rates, relatively high incentive offerings, and decent personal income growth are combining to help keep a newvehicle purchasewithin reach for a greatmany consumers. Affordability has been strong for many years, and this is not expected to change. Interest rates, although increasing slightly, should remain lowfor anextendedperiodandpersonal incomehas started to improve. In addition, as discussed in more detail below, discounting by the manufacturers could be heading higher in the near future. The fourth reason to believe that new vehicle sales will remain at elevated levels for an extended period is the possibility that manu- facturers will ratchet up incentives and discounting. Manufacturers have generally stated a commitment to hold the line on incentives and emphasizeprofitabilityover sales volume.However, if demand starts to soften, the battle formarket share could result in awider opening of the incentives spigot, which would prolong the sales rebound. Corporate profits have been very strong for several years, somost manufacturers have the resources to increase discounts. Predicting new vehicle sales typically involves comparing and weigh- ing the factors that are pointing to an increase or decrease in sales. And as discussed above, there is presently amix of both bearish and bullish indicators. The most likely outcome for the New Jersey market is a stabilizing of the growth trend, with sales drifting either slightlyhigher or lower. We also believe, however, that New Jersey new vehicle sales can remain at historically high levels for several more years. Jeff Foltz is President of Auto Outlook, Inc., an independent automotive mar- ket research firm. He can be reached at autooutlook@me.com. D.T. MURPHY & CO. 973 809-9311 • dan@dtmurphy.com • www.dtmurphy.com Dan Murphy urphy DAN MURPHY MATCHING BUYERSWITH SELLERS SINCE 1989 ~~~ SELLINGYOUR STORE? I HAVETHEWILLING, READY AND ABLE BUYERSYOU’RE LOOKING FOR CONFIDENTIALITY ASSURED. ~~~ WHAT’SYOUR STOREWORTH? MY COMPREHENSIVE BUSINESSVALUATION COMPLIESWITH IRS GUIDELINES FOR ESTATETAX PURPOSES & PARTNERSHIP LITIGATION . . . 973 809-9311 • dan@dtmurphy.com • www.dtmurphy.com Dan Murphy D.T. MURPHY & CO. 973 809-9311 • dan@dtmurphy.com • www.dtmurphy.com Dan Murphy .T. RP Y CO. 973 809-9311 • dan@dtmurphy.com • www.dtmurphy.com Dan Murphy