Pub. 15 2016-2017 Issue 3

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 I S S U E N O . 4 , 2 0 1 6 16 new jersey auto retailer BY JEFF FOLTZ A s clearly illustrated on the accompanying graph, the New Jersey new light vehicle market has been on a roller coaster ride during the past ten years. New retail light vehicle registrations in the State fell from more than 515,000 in 2005 to just over 358,000 in 2009. By 2015, the market was right back where it was in 2005. Following the six year run-up, new vehicle sales have flattened in 2016. With sales leveling off, concern has started to mount that the market will now begin a free fall, similar to the big drop that culminated in the 2009 collapse. It goes without saying that automotive sales predictions carry a lot of risk. And the outcome of the Presidential election, in particular, has added some uncertainty about the future course of the automotive market. But the way things look now, there is very little chance that sales will fall precipitously. And the prospects are good that, although sales are likely to decline somewhat, they should remain at historically strong levels for at least the next two to three years. There are several reasons why a major drop off in sales is unlikely. To begin with, the sharp decline that occurred between 2005 and 2009 does not hap- pen often. Based on historical analysis of long term sales trends, there is very little chance that another decline of this magnitude will occur within the next 30 to 40 years. U.S. sales declined by 38% between 2005 and 2009. The second high- est four-year decline during the past 40 years was 30%, which happened between 1978 and 1982. And as shown on the ac- companying graph, although new retail registrations in New Jersey drifted lower between 2000 and 2007, the market was relatively stable, and avoided a major decline. And U.S. sales were growing, and remained at healthy levels during an extended period that lasted from 1994 through 2007. In addition to the historical evidence that indicates a big sales drop is unlikely to occur in any ensuing downturn, the market has some key foundational sup- ports that were absent in 2007. Here are three key factors supporting a relatively bullish outlook for the New Jersey new vehicle market: • Household balance sheets have im- proved. Perhaps the biggest threat to new vehicle sales in 2007 was the excessive debt that many households were ca r r yi ng. Boosted by easy credit, primarily in real estate, debt reached record high levels, and as a result, many consumers were cash strapped. In 2008, more than 13% of disposable personal income was directed towards debt service on NEW JERSEY NEW LIGHT VEHICLE MARKET LIKELY TO STAY STABLE