Pub. 16 2017-2018 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 I S S U E N O . 1 , 2 0 1 8 36 new jersey auto retailer A fter hitting the recessionary low-point in 2009, the New Jersey new retail light vehicle market went on an impressive seven-year winning streak. New retail registrations in the State in- creased from 359,000 in 2009 to just over 530,000 in 2016, an increase of nearly 50 percent. (See accompanying graph. Source for vehicle registration data is IHS Markit.) The ingredients that sparked the market during this period were plainly evident – low in- terest rates, pent-up demand from several years of depressed sales, average age of vehicles on the road were at record highs, and limited supplies of used vehicles boost- ed trade in values. Considering this list of positive factors, the market had nowhere to go but up. Obviously, there is a ceiling onhowhigh sales can go and that level was reached in 2016. New retail registrations in the State declined 3.1 percent last year, and it is becoming in- creasingly apparent that the newvehiclemar- ket has reached a plateau. Given the highly cyclical nature of the industry, attention has naturally shifted to appraising the steepness of the ensuing sales drop off and establishing when the trough will be reached. Precisely pinpointing where the market is headed is nearly impossible. However, based on Auto Outlook’s annual review of key market determinants, it would appear as though sales are likely to drift lower during the next two years, while remaining well above historical averages. Each of the key determinants are listed, followed by a grade reflecting how the economic or auto market indicator is likely to impact sales. An “A” means that the indicator is pointing to strong sales, while an “F” means that the direction of sales could be decidedly negative. Following the report card is our overall evaluation of the market. Economic Growth. Grade: B. The econ- omy has been growing at a respectable, although hardly robust, pace for several years. GDP growth was 2.5 percent at the end of 2017 and most economists expect this trend to continue in 2018. Positives for growth are lower taxes and falling unemployment. Negatives are increasing interest rates, and concerns about trade. A significant majority of economists view protectionist policies (i.e., tariffs and quotas) as restrictive for economic growth. LaborMarket. Grade: B+. The New Jersey unemployment rate stood at just above 4 per- cent at the end of 2017, but total employment in the state barely increased from2016 levels. Consumer Confidence. Grade: A- . The improving economy, rising incomes, and ascending net worth have led many con- sumers to feel upbeat about current and future economic conditions. The volatile stock market and increasing interest rates are potential concerns for 2018. Consumer Affordability. Grade: B-. Rel- ative to income levels, new vehicles are still relatively affordable. Household incomes are increasing, and when accounting for increased equipment levels, vehicle price increases have kept pace with inflation. Rising interest rates are leading to higher monthly payments, a negative for afford- ability. Household Debt. Grade: B. Debt service payments are eating up a much smaller chunk of household income than at the peak of the financial crisis in 2009. However, the household savings rate has declined during the past several years and outstanding con- sumer debt is moving higher. Pent-Up Demand. Grade: B. Following seven years of increasing sales, the market has fully recovered from the low point in 2009, and as a result, pent-up demand is eas- ing. There are several reasons for automo- tive consumers to be motivated to replace their current vehicles, but the frequency of purchases that occur out of necessity (i.e., current cars are wearing out) is lessening. New Products. Grade: B+. In the past, auto companies have not been responsive to shifting consumer tastes. But that’s not the case in 2018. As demand for SUVs has grown, manufacturers have introduced desirable new products in every conceivable size and configuration. And if fuel prices were to unexpectedly surge, there are a slew New Jersey New Vehicle Market Likely to Drift Lower but Sales Should Remain Strong BY JEFF FOLTZ