Revving Up: The Imperfect Storm
A confluence of factors in the new car and wholesale markets make this a good time to short cycle your fleet.
Usually when people talk about a "perfect storm" on the high seas-or in business-there is nothing perfect about it. In fact, it usually bodes disaster. There may be a storm in the present state of the new car market coupled with the used car market a few years down the road. This storm is by no means perfect, but the confluence of factors creating it, this time, is positive. If-and for many that's a big "if"-you're in the market for fleet vehicles, now is a good time to buy or short cycle your existing fleet.
Wholesale Market Rebounds
Last year's high gas prices, down economy and glut of off-lease and de-fleeted rental vehicles put wholesale market prices into an unprecedented tailspin.
Used car sales are finally bouncing back. Adesa values show that average wholesale prices have risen by almost $750 since their trough in October. Truck, SUV and full-size car prices are rebounding, especially for the domestics. Luxury, midsize, compact and subcompact segments are holding their own. Hybrids are underperforming, as transaction price now trumps miles per gallon with the bad economy and lowered gas prices.
These higher wholesale values are money back in your fleet pocket.
New Car Market Freefall Continues
Now consider the new car market, where the sales pace continues its freefall. Rental fleet sales, the largest source of new car sales, are the lowest in some 30 years. Because of the credit crunch and the captives' pullback from leasing, lease originations for the Big Three have largely evaporated.
At 13.2 million total sales, 2008 saw the worst annual volume since 1992. When 2009 is said and done, the most Pollyanna of prognosticators are only predicting 10.5 million unit sales-not seen since 1982.
That means in a year to 36 months, when rental fleets start recycling their vehicles bought today and consumer leases are returned, the auction lanes are going to look like a Western ghost town. Well, not that bad. But the fact that there will be substantially fewer used vehicles on the market is good for residual values. This value buoyancy is threatened, of course, by a GM or Chrysler bankruptcy.
Right now, dealers are giving away the store to move metal off their lots, with consumer discounts of up to 20 percent of a vehicle's sticker price. Incentives are at all-time highs.