Economy holds the key to auto dealers' success

SUNDAY OUTLOOK

November 27, 1994|By Ted Shelsby

New car sales -- an important barometer in measuring the country's economic health -- have been on the rise this year. Across the country, sales of cars and light trucks are up about 9 percent over the 1993 selling pace.

In Maryland, the gain is even greater. According to figures compiled by the Motor Vehicle Administration, vehicle sales for the first 10 months of the year are 17 percent ahead of the 1993 sales pace.

Can this strong sales pace continue? What is your forecast for 1995?

Alfred Shockley

President, Maryland New Car and Truck Dealers Association

I'm cautiously optimistic that 1995 will be another good year for dealers in the state. It will depend on the general economy.

I think next year will be a good year, but it will not likely be better than the current year.

The industry is sensitive to interest rates and there are many people in the industry who don't understand why rates are going up when inflation is so low. Interest rates are a concern. When rates go up, the activity in these areas declines. Usually when housing sales are good and the building industry is good, auto sales are good. We are going to have to see what happens to interest rates.

Another factor that could influence sales next year has to do with the job market. The state unemployment rate has been coming down, but a lot of the people who were used to making $12 to $20 an hour have had to take new jobs paying $6 to $7. Companies are also hiring a lot of temporary workers. These people are less likely to be buying new cars.

George Magliano

Director of Automotive research WEFA Group.

I've recently revised my estimate for 1995 downward. It's my view, at this time, that sales of cars and light trucks in the U.S. will likely total about 15.8 million. I had been predicting sales of 16 million to 16.2 million, which would have been an all-time sales record.

The reason I backed off on my estimate: The Federal Reserve's recent three-quarters of a percent increase in short-term interest rates. That makes me nervous.

The Fed is sending the message that it wants to keep inflation under control, even if it means that the economy will not be as robust. When the Fed slows things down people begin to worry about their job security and they are less likely to spend on big ticket items.

Jacob J. Cohen

Partner, Walpert, Smullian & Blumenthal

The trend in auto sales continues to be strong. I believe that steady sales will be maintained for the next two to three years locally and probably will match or exceed national sales trends, which are expected to reach 16.5 million units by 1997. This is up from the current level of 15.3 million units.

The automotive industry, and specifically auto dealers, continue to enjoy the benefits of an improved economy in Maryland. As a segment of the retail industry, they represent one-sixth of the total retail sales in the state. Dealers continue to expand and hire additional staff to meet the demand of expanded business volume.

Van Bussmann

Economist, Chrysler Corp.

I expect sales of cars and light trucks to total 15.2 million units this year. Next year we expect this to jump to 16.2 million. That would be a record high.

There are a couple of reasons for this.

First, consumers seem to be in better shape. Real disposable income per household is growing. Unemployment is falling. The work week is growing. Overtime is up. Things are getting pretty good.

The other reason: During the recession there was a build up of 6 million units in pent-up demand as people put off their purchases of new cars. Entering into 1995, I think that at least 5 million of that pent-up demand is still out there.

Of course, my predictions are assuming there is no oil shock or interest rates don't shoot up another 200 basis points.

Tom Webb

Chief economist, National Automobile Dealers Association

I think there will be only a modest increase next year.

Cars cost too much and this is going to hold down sales. The high price of cars forces motorists to keep their cars longer and that keeps them out of the marketplace.

Interest rates are not having a direct impact on the auto industry. But if a rise in rates begins to slow down the overall economy it will impact auto sales.

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