Auto Competition to Heat Up, NADA Says

TRAVERSE CITY, MI – Expect an auto industry shootout for the rest of the year as the competition gets serious, says Paul Taylor, chief economist for the National Automobile Dealers Assn.

“There will be knock-down, drag-out competition, because all of the auto makers have good inventories, except for a couple with bottlenecks,” he says at the Center for Automotive Research’s Management Briefing Seminars here.

“Everyone will have almost enough of everything,” Taylor says of dealer stock. “Customers will find everything they want in the second half of the year.”

That’s in contrast to the first half, when U.S. inventories were sparse, especially for Asian auto makers still feeling the ill effects of natural disasters in the region in 2011.

“The first half of 2012 was hard for some dealers, because you can’t sell what you don’t have,” Taylor says. “There were a lot of inventory difficulties because of the earthquake and tsunami in Japan and the floods in Thailand.”

For example, Honda’s days’ supply went from 33 a year ago to 44 in May to 53 in June, he notes at a seminar session entitled “Where Have All the Sales Gone?”

Hard times delivered a blow to the auto industry that is recovering faster than the national economy, Taylor says. “I’m convinced we will get over car sales of 14 million this year, but how far over is an unknown in this economy.”

Hyundai and Kia sales in the U.S. would be higher this year were it not for capacity constraints in South Korea, he says. Japanese auto maker Subaru faces the same problem to a lesser degree. But other auto makers and their dealers have sufficient stocks.

“The inventory shortages are over,” Taylor says. “Everyone is ready to sell. There will be more competition to get customers’ attention.”

Preventing an outright sales explosion are some stubborn economic negatives. Those include 8.3% unemployment, weak consumer confidence and a housing market that has not fully recovered, Taylor says.

Strong housing prices spur vehicle sales, he says. “Housing prices were in a free-fall a few years ago. Now, prices have found a bottom in most states, although we are still seeing some difficulties west of the Rockies. But overall, prices were up 0.5% in the first quarter of 2012.”

In addition to stabilizing real-estate prices, auto sales are aided by easier credit and reasonable gasoline prices, “although those have been up lately,” Taylor notes.

But it’s a small world, and the European economic crisis may have a far reach. “We will have to see what Europe will do to U.S. success,” he says.

The midsize car is Taylor’s standout segment of 2012. “We are seeing the strongest growth there, as many households look for a vehicle that meets their needs and still delivers good fuel economy.”

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