Pub. 17 2018-2019 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 15 new jersey auto retailer W W W . N J C A R . O R G several reasons why we believe that a major drop-off in sales is unlikely. To begin with, the sharp decline that occurred between 2005 and 2009 does not happen often. Based on historical analy- sis 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 highest four-year decline during the past 40 years was 30%, which happened between 1978 and 1982. And, as shown on the accompanying graph, although new retail registrations in New Jersey drifted lower between 2000 and 2007, the market was relatively stable, and avoided a major decline. U.S. sales were also growing, and remained at healthy levels during an extended period that lasted from 1994 through 2007. Regarding the impact of ride hailing services on new car sales, we think many market watchers get this wrong. There is very little reason to think that the existence of ride hailing services, as they exist today, will have any negative impact on new vehicle sales. They may impact who the vehicles are sold to, but not the volume of sales. If consumers embrace ride hailing in a significant way and use their own vehicles less often, it’s true that they might wait longer to purchase a new vehicle. But the vehicles used by ride hailing providers would wear out faster. Ultimately, after stripping out the impact of unavoidable economic swings, the volume of new vehicle sales is a function of miles travelled for the entire f leet of vehicles in operation and ride hailing does not significantly change this. In addition to the above points, it is unlikely there will be a big sales drop in any ensuing downturn because the current market has some key foundational supports that were absent in 2007. Here are three key positive factors for the New Jersey new vehicle market: • Motivation to upgrade. Despite several years of strong new vehicle sales, the average age of vehicles on the road still exceeds 11 years. Today’s new cars and trucks are far superior to the average 11-year-old vehicle. Advanced safety technologies, which were once expensive options exclusive to luxury brands, are now standard features on many mass-market trucks and cars. In addition, an ev- er-expanding array of new products, fulfilling every con- ceivable market niche and powertrain type, will continue to entice consumers into the new vehicle market. • Economic growth is positive; labor market is strong. GDP growth shifted into a higher gear during 2018 and most economists expect growth to remain solid over the next year. Correspondingly, the New Jersey unemployment rate has trended lower, employment gains have been steady, and incomes are increasing. • Consumer confidence is high. Most measures of con- sumer attitudes reached 18-year highs last year. There has been some weakening in consumer confidence early this year due to concerns about the volatility in financial markets and global trade, but the combination of decent economic growth and the strong labor market, should help keep New Jersey consumers relatively upbeat about the future. Predicting new vehicle sales is, without question, an inexact science. There are a multitude of forces impacting the mar- ket on an ongoing basis. As highlighted above, some of these forces are pushing the market higher, while others are pulling it lower. Although we agree with the consensus view that the market is due for a slowdown, there are enough positives to prevent a major drop in New Jersey new vehicle sales. By 2020, new retail light vehicle registrations in the state are pro- jected to be at right around 490,000 units, an approximate 6% decline from 2018. The expectation of a declining market is not welcome news, but annual Statewide registrations should still be close to 500,000, which is a very respectable total for the State market. Jeff Foltz is President of Auto Outlook, Inc., an independent automotive mar- ket research firm. He can be reached at autooutlook@me.com .