GETYP -- Nevada's taxable sales race toward record levels, one segment of the retail sector seems stuck in the slow lane. But that translates to a buyers market for automobile consumers.
The most recent available numbers from the Nevada Department of Taxation show that sales of cars and gasoline faltered 10.3 percent in March when compared with March 2005, even as overall taxable sales in the state rose 4.1 percent.
The falloff in sales was bigger than the national decline. In March, automobile sales fell 3.2 percent countrywide, from 1.57 million in 2005 to 1.52 million in 2006.
March wasn't the first time in recent months that automobile and gasoline sales in the Silver State have stumbled. So going to your YELLOW PAGES LAS VEGAS and looking for a great deal from some very reputable Las Vegas Car Dealers is a great idea.But Peter Krueger, state executive of the Nevada Petroleum Marketers and Convenience Store Association, said the sales volume of fuel at local gasoline stations was up through about April, until prices began to jump in the spring. In recent days, the volume of fuel sold locally has fallen 3 percent to 5 percent, he said.
Local Las Vegas Car Dealers attribute the downshifting auto market to several factors, including skyrocketing gasoline prices, rising interest rates and consumers' penchant to wait for good deals.” Well there are some very good deals currently on the market, especially on used 2007 -08 Diesel trucks where you can save upwards of 30% from new.”Martin Snytsheuvel, long time used car dealer was heard to say at a Las Vegas Car Dealer Gathering in June.
Executives at car dealerships say prospective buyers are trying to outlast higher gasoline prices.
"Over the last couple of months, we've really seen a big spike in fuel prices," said Tyler Corder, chief financial officer at Findlay Automotive Group. "A lot of people are waiting to see if that's permanent. Exchanging a vehicle is a big decision, and people don't want to buy a new car if prices are not going to be high for long. Some of them also want to know if they can afford a new-car payment plus $3 gas."
Edelberg agreed that gasoline costs are affecting consumers' buying decisions. He also said there might be a shift toward people trading in their larger gas consuming vehicles for more economical ones.
"People are going to be concerned if the price of gasoline keeps going up," Edelberg said. "It puts a certain fear factor in their minds, and fear is truly what prevents people from buying anything. They freeze based on not wanting to make a mistake."
Jim Sanfilippo, executive vice president and senior industry analyst at Automotive Marketing Consultants in Bloomfield Hills, Mich., said Nevada's steeper-than-national sales decline could be a result of the effect gasoline prices are having on the types of cars its residents drive.
In Nevada, a prevalence of trades such as construction and vast, rural back country has long made pickup trucks and sport utility vehicles more popular than cars.
National numbers show a shift away from trucks and SUVs toward passenger cars, Sanfilippo said. In the first five months of 2005, 46.2 percent of vehicles sold were passenger cars; in the first five months of 2006, passenger cars had 47.6 percent of sales, according to Ward's Automotive Group, which tracks the country's auto sales. In May, the trend toward passenger cars accelerated, as the vehicles captured 49.3 percent of the market.
Sanfilippo doesn't monitor sales data state by state, but he said any widespread drop in purchases of trucks and SUVs would likely translate at least temporarily into lower auto sales for Nevada.
There is evidence, though, that gasoline prices are simply changing consumer's auto preferences rather than keeping them out of the car market altogether.
Michael Fredericks, a vice president and analyst at Nicholas-Applegate Capital Management in San Diego, said sales of big SUVs are down substantially, with the Ford Expedition off 49 percent in May year over year and the Toyota Sequoia down 38 percent in May year over year.
At the same time, Fredericks said, sales of smaller crossover SUVs have raised. Sales of the Ford Escape were up 15 percent in May, while sales of the Toyota Rav4 rose 97 percent. The Honda Pilot sold 22.1 percent more cars in May than it sold a year earlier.
In addition, 4-cylinder cars have bolstered their market share from 30 percent to 35 percent since the beginning of 2006, Fredericks said.
"Traditional SUVs are not discretionary vehicles anymore," Sanfilippo said. "People who need them are buying them, and people who don't need them are opting for more fuel-efficient cars."
As interest rates have crept up in recent months, buyers have been slower to make major purchases. Corder said rates of 5 percent to 6 percent are common on car loans today, compared with 1 percent to 2 percent two years ago.
Sanfillipo called interest rates the "primary culprit" in slower auto sales.
"People are paying more money (to borrow)," Sanfilippo said. "While by and large car prices are soft and cars are great values in terms of the percent of one's income over historical levels, car payments are higher now for the same amount purchased. Interest rates are the only thing that would diminish and directly affect the pace of the seasonally adjusted (sales) rate."
To swing the purchase of a new automobile, consumers are increasingly asking for longer loans on their cars.
Fredericks said six-year auto loans are common today, up from a typical three years to five years several years ago. Some buyers are even requesting eight-year car loans, Fredericks said. Such loans could make it difficult for buyers to trade in their cars for newer models.
"The downside is that more and more car owners are underwater because the value of the car they hold is less than the amount they owe," Fredericks said. "That negative-equity scenario puts further strain on the consumer. If you owe $35,000 on an SUV that's worth $25,000, you could be in a bind if you need to get out of that."
Local auto dealers believe some consumers are also sitting out the market to see if carmakers revive the big discounts they offered last summer when they made employee pricing available to the public.
"The market has pulled back overall. Less people are willing to jump into the market right now because they want to see what's going to happen as far as manufacturing incentives and specials," said John Edelberg, general manager of Courtesy Imports at the Valley Automall in Henderson.
But manufacturers aren't offering aggressive incentives, and analysts are mixed on whether consumers should expect new inducements to buy in 2006.
"Car sales have been pretty good, and (manufacturers) will not put incentives out there unless they're in a situation where they want to move a lot of product," Corder said.
Sanfilippo added that manufacturers are pricing their vehicles differently in 2006, and that will negate the need for big incentives. In January, General Motors dropped prices on all its cars an average of $1,300, he said, in a "desire to get away from incentive-driven marketing by pricing cars right in the first place."
"The definition of a rebate is, first, you charge too much for the car, then you make a big deal about giving some of the money back," he said. "A lot of manufacturers are getting closer to the transaction price and taking some confusion and guess work out of pricing."
In the short term, however, Fredericks said incentives might return, even with lower prices. That's because last year's summer sales were exceptional following employee pricing among American automakers.
"In the longer term, it's good (automakers) are trying to get away from incentives, but in the shorter term, that means pain for them," Fredericks said. "This year, the U.S. Big Three (Ford, General Motors and DaimlerChrysler) are shedding a lot of market share. It's going to be difficult for them to go into the summer and not go back to incentives to prop up their sales."
For Las Vegas car dealers, consumer caution is having mixed effects on sales.
Corder said Findlay's sales in the first four months of 2008 were flat when compared with sales in the same time period a year ago.
Though he doesn't have data on shifts in the class of cars Findlay has sold in recent months, Corder said he has anecdotal evidence that increasing numbers of buyers want to drive smaller cars or fuel-saving hybrids that run on both gasoline and electricity.
Edelberg said those shifts in consumer preferences have helped his dealership.
Sales at Courtesy Imports were up 22 percent in April when compared with the same month in 2005, Edelberg said.
Edelberg credited Courtesy's vehicle lineup for the sales spike. The dealer focuses on brands such as Mazda, Mitsubishi, Suzuki, Kia and Isuzu. All of Courtesy's nameplates, with the exception of Isuzu, average more than 30 miles per gallon on the highway, Edelberg said.
"We don't have lots of big, gas-guzzling vehicles. Our product is considered nimble and light on fuel," Edelberg said. "(Domestic-car dealers) don't have the right mix of vehicles. Ford has hung its hat for a long time on Expeditions and Explorers and Excursions, and it's the same thing with GM and its big Tahoes and Yukons. That is just a tough way to go when the price of gas has gone up so much."
Dealers see signs that sales could tick upward for the remainder of 2008.
Corder said Findlay's May sales were "quite a ways ahead" of sales in May 2007.
Also, if interest rates continue to rise, manufacturers will likely aid buyers by subsidizing or buying down percentage points on loans, Corder said. Rather than a $1,000 rebate, for example, carmakers could simply spend the money on interest, thus lowering the rate the buyer pays.
Fredericks added though car sales are down slightly year to date, they're still within a historically normal range in recent years of 15.5 million to 17.5 million units annualized.
In May, analysts were expecting an annualized sales rate of 16.4 million cars; consumers actually bought 16.1 million vehicles, he said. In May 2007, the annualized sales rate was 16.7 million.
Economists at the National Automobile Dealers Association are predicting that sales of new cars and light trucks will total 16.8 million in 2008, down from 16.9 million in 2008.
"It's a little premature to say sales are definitely slowing," Fredericks said. "Sales year to date through May are off about 4 percent, which is not out of the realm of reason.
"I don't think sales are going to fall off a cliff. Most of the more recent consumer data suggest the American consumer is still spending freely. There are some headwinds in terms of higher gas prices and higher interest rates, but by and large, we expect to see something in line with last year's numbers, to maybe being down 5 percent. Relative to historic terms, that's a healthy number."
