How many of your neighbors are suddenly driving new cars?
Auto sales are rebounding as cautious Americans who held onto
their cars through the economic downturn are now trading up to
newer vehicles. Sales of new cars rose 17% in August, reaching an
annualized rate of 16.09 million -- not a record, but the fastest
pace since December 2007.
), the dealership chain with the largest revenue, reported
Thursday its new car sales soared a whopping 32% in August. Its
sales of luxury-premium category vehicles swelled 37%.
Auto dealerships of all stripes have upshifted financially as
more consumers commit to buying new cars and a rising number of
willing lenders are helping them do so.
The 10 auto dealership chains tracked in IBD's
Retail-Wholesale-Automobile industry group have all seen sales
and earnings tick higher in recent quarters. Most have also set
new stock highs over the last month.
Analysts expect the financial gains to continue in coming
years as the industry puts more distance between itself and the
beating it took during the recession of 2008 and 2009.
"There are a number of things pushing growth in the industry
right now -- pent-up demand from buyers, better access to
financing, an onslaught of new products and technologies," said
Larry Dixon, senior automotive analyst at the National Automobile
Dealers Association (
). "The whole industry has benefited."
In terms of stock price, collectively, the auto dealers'
industry group is up 34% since the beginning of the year. It
ranked No. 29 on Friday among IBD's 197 industries. In addition
to AutoNation,CarMax (
),Penske Automotive Group (
) andGroup 1 Automotive (
) are the group's largest players.
Aging Cars, Access To Credit
Before the industry's August sales report, most industry
researchers forecast that sales of new vehicles will reach about
15.5 million units this year, up from 14.4 million in 2012. Even
the most optimistic upwardly revisions are still well below the
peak of 16.6 million units sold a decade ago. The trough occurred
in 2009, when only 10.4 million vehicles were sold.
One of the key drivers of the recent growth is the nation's
aging fleet of cars. The average age of cars on the road is about
11.5 years, according to industry estimates. That's well above
the average of nine years established a few years ago.
"Consumers held on to their vehicles during the recession
longer than would have otherwise, and now many of them are ready
to get back into the market," Dixon said.
And thanks to easing financing requirements by lenders, more
consumers are able to secure car loans than during the
recession's lockdown years.
"We've seen a big improvement in access to financing," said
Thomas King, a senior director at industry researcher J.D. Power
& Associates. "Credit restrictions were heightened during the
recession, so we saw a lot of lower credit customers get out of
the market. A lot of those issues have subsided over the last
couple of years, which has helped the industry tremendously."
Improving Vital Signs
AutoNation operates 221 dealerships plus 265 franchises across
the U.S. Penske Group's chain includes 334 dealerships in the
U.S. and the U.K.Sonic Automotive (SAH) and Group 1 Automotive
operate more than 100 dealerships each. CarMax runs 118
dealerships, but focuses strictly on used car sales.
The group's top stock has been Oregon-basedLithia Motors
(LAD), which owns 87 dealerships serving small metropolitan or
rural areas. The company works to lock down exclusive brand
representation within its given markets: to be the only Ford, GM
or Dodge dealership, for example.
That strategy pushed sales ahead 23% last year, with estimates
for a 20% gain this year. By comparison, AutoNation's sales are
forecast to gain 12% this year. Analysts project a 10% gain for
The industry is also home to other kinds of auto-related
players.Kar Auction Services (KAR) conducts car salvage-used
vehicle auctions via more than 200 physical locations as well as
multiple Internet venues.Rush Enterprises (RUSHA) operates
commercial vehicle dealerships.Lentuo International (LAS) is a
small operator attempting to build a network of dealerships in
China, whileChina Auto Logistics (CALI) distributes vehicles to
dealers and other auto sellers there.
AutoNation logged $15.7 billion in revenue last year and has
reported seven straight quarters of double-digit sales and
earnings gains. The company has also recorded record EPS each of
"That just shows you the industry is healthy when each quarter
you are growing year-over-year," said Marc Cannon, AutoNation's
senior vice president of corporate communications and public
Penske, which ranks No. 2 in sales, has logged double-digit
sales and earnings growth in five of the last quarters.
No. 3 CarMax has run off three straight quarters of
double-digit sales and earnings growth, while No. 4 Group 1 has
grown the top and bottom lines in double digits in six of the
last seven quarters.
While new car sales have driven much of the growth, dealers
also have benefited from a bigger focus on used car sales, the
NADA's Dixon says.
"Used vehicle operations have done very well for them over the
past few years," he said. "They have placed greater emphasis on
used vehicle sales than they did before the recession because
they have had to deal with more cost-conscious consumers."
In addition, dealers have put a bigger emphasis on efficiency
to help them stay competitive.
"Like many industries, the car dealership industry has become
increasingly competitive," Dixon said. "Most dealerships are
running leaner and meaner than they were certainly before the
Technology, Luxury Sales
Although different industry researchers have different
estimates for new-car sales this year, most expect a healthy
increase from 2012.
According to an Aug. 28 report from "Automotive News,"
TrueCar.com forecasts an annual rate of 15.75 million units sold
this year. Kelley Blue Book forecasts 15.6 million units, while
Wells Fargo forecasts 15.5 million to 15.6 million.
A joint forecast from J.D. Power and LMC Automotive puts the
number at 16 million. If that happens, it will be the first time
since 2007 that sales topped 16 million for the full year.
The annualized rate at the end of July was 15.9 million units,
according to the NADA data. Through July, total light vehicle
sales for the year totaled 9.1 million units, up 8% from the
previous year. August pushed the number to 10.6 million, 10%
above the year-ago level.
In addition to more sales, the industry has benefited from a
willingness on the part of buyers to spend more money on
"We've seen the transaction prices rise about 3% year to
date," said J.D. Powers' King. "There has been a general shift
toward more expensive vehicles."
Technology also has become a more central factor in sales.
Dealerships obviously don't create the gizmos that go into new
cars and trucks, but they benefit from recent advances.
"If dealers feel that new technology will increase their
probability of success, they certainly will sell it," Dixon
"The big thing" in automotive technology is smartphone
connectivity, he said. Today's systems go beyond merely
connecting a phone to the car's system. Technology now includes
having the smartphone interact with the car.
Rear-view cameras have also gained traction with buyers -- so
much so that these cameras are now standard on all Honda
"Just a few years ago these were only available only on luxury
cars," Dixon said. "Now you see them available in all types of
Meanwhile, dealerships are also touting lane departure warning
systems, which set off a visual or audible alarm when drivers
drift over to the next lane; and adaptive cruise control systems
that tell drivers when they are creeping too close to the cars in
front of them.
Most industry analysts have an upbeat outlook for car dealers.
In addition to better access to financing and an aging fleet of
cars on the road, dealers have gotten a boost from a rebound in
the construction industry, particularly housing.
"Large pickup truck sales continued to outperform (in July)
and the outlook remains positive, driven by the housing and
construction recovery," Keybanc Capital Markets analyst Brett
Hoselton noted in an Aug. 23 industry report.
He says large pickup truck volume increased 23% year-over-year
in July "and continued to outperform the industry." This has
given a particular boost toLithium Motors (LAD), which Hoselton
estimates gets 25% to 30% of its sales from pickups.
AutoNation's Cannon says all types of vehicles have been
selling well in recent months.
"You seeFord (F) again having another good year, and you also
see that with other domestic carmakers," he said. "Toyota is back
on track. The luxury business is also growing. We are seeing
strength in all categories right now."