There was much to discuss from the teleconference presentation yesterday by Bill Strauss, senior economist at the Federal Reserve Bank of Chicago, but the most salient point I took away from his presentation was that the SAAR should improve to 11 million to 12 million in 2010. This is despite the fact that the index of consumer sentiments toward buying an auto in the next six months remains somewhat flat (and by flat I mean not strong). One positive for the economy is that there is “lots of stimulus coming,” Strauss said. For a dismal economist, that seems to be an enthusiastic endorsement for the future.
Strauss’s teleconference was presented by AutoFinanceNews.net. To hear a reply of the teleconference, call 712-432-1085, passcode 214724.
I would like to comment on the “one-price” discussion. I think that as we speak the industry at all levels is in the midst of change, including how dealers sell cars. The Internet is continuing to create greater transparency of price and the consumers are starting to demand more and more that they be given the price of the car upfront. Would you walk in to a Best Buy to purchase a new 65″ Big screen TV without knowing the price? If you googled the TV you were looking for and were not able to get a real price on the TV would you go to that store? It is my strong opinion, that especially as generation Y people become car buyers, that if a dealer is not totally transparent on price of their vehicle at the marketing stage, the generation Y consumer will not go to that dealership. I also feel the same is true relative to the negotiation process that takes place in the Finance Office of many dealerships. The car buyers of tomorrow will demand price transparency for the car they purchase as well as the financing.
Remember the large regional variation in (un)employment rates … job losses in some parts of the country are far, far higher than elsewhere. Housing was a big part of such regional booms (and now busts), so for your local market, try to think about what sorts of jobs are being lost, and how many of them will stay lost until new housing construction starts to rise and all those contractors and related retail and service sectors stabilize. At that point local retailers will be able to plan, and (depending on your region’s tax base) local real estate assessments and hence government revenue also stabilizes.
But I’m on the pessimistic end in thinking about this recession, based on my couple years in Japan following the bursting of their bubble in 1991-2. Stock prices there both remain below about where they were 25 years ago; real estate is below that level and still falling. There are special circumstances — population and household formation in Japan are falling, but continue to rise at about 1% pa in the US. In my analysis the experience during recent US recessions is not likely to be a robust guide to what happens this time around. Especially if California files for Chapter 11 at some point.
Yes, the SAAR his been better recently. I suspect it would have been even better except for the folks who were waiting for Cash for Guzzlers. Without the folks “on the fence,” the SAAR might have been even higher. How much higher is blind speculation.
As important as “stimulus” might be, “certainty” is an essential ingredient when it comes time for a consumer to make a decision. While consumers perceive there are chances of more or enhanced programs, stimulus, rebates, etc., many consumers will take a “wait and see” attitude. Once there is some perception of certainty, I expect the floodgates to open as much as the credit markets will allow until the money runs out.