What Really Works For Forecasting New Vehicle Sales? (w/ Daniel Ruiz) | Expert View | Real Vision™

What Really Works For Forecasting New Vehicle Sales? (w/ Daniel Ruiz) | Expert View | Real Vision™


So now going to move onto what actually works. And I should preface this by saying that what
led to these indicators that I’m going to share with you right now was really frustration
as an analyst myself and as a consultant myself because I couldn’t find any correlation or
a strong enough correlation to utilize any of the indicators I just mentioned in a way
that would help investors and in a way that would help forecast future volume and margin. I started thinking back to my 15 years in
the automotive industry and what I experienced with consumers. And the obvious nonstarters, as I mentioned
before, are if you’re not employed, you’re not going to get an auto loan. If your income isn’t sufficient, you’re not
going to get the auto loan. If your credit is bad enough, you’re not going
to get an auto loan. And that’s more specific to new vehicle sales
because you can always find a home for somebody with bad credit as it relates to a vehicle
if it’s old enough and inexpensive enough to offset the higher interest rates. But it’s very difficult on a new car sale. The biggest challenge that I always ran into
was trade-ins and the level of equity that the consumer had in their vehicle. That was one of the strongest objections that
I continuously encountered in the auto industry. So it led me to start digging into, is there
any correlation historically to equity and consumer behavior? I should also state that this is extremely
important because 87% of new vehicle sales in the US are financed. On average, those vehicles that are purchased
new that have debt attached to them are traded within three years. So we know, based on the average loan term,
the majority of folks that are coming back to trade their vehicles have an outstanding
balance on their loans. And the relation to it with the used car value,
their specific vehicle, and the principal balance that’s owed on that car is what often
determines whether they’re going to purchase a new vehicle or not. What I’ve noticed is, throughout those transactions,
if there was equity in the trade, the likelihood that a consumer would move forward with a
new purchase was very high.

About the Author: Michael Flood

3 Comments

  1. New car sales are dead.. Skilled trades are dead. Wages are dead. Equity is dead. Credit is dead.
    The only new car sales are Toyota Prius and Honda Odysses both of which have low resale value regardless of equity.

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