Glitzy Vegas, Gritty Detroit Have Much in Common

The National Automobile Dealers Assn. last held its annual convention in Las Vegas in 2007, which ended up as a fairly decent sales year for the car industry, with 16.1 million deliveries.

Granted, that fell short of prior years when sales banged the gong at more than 17 million. But in retrospect, 2007 was a very good year compared with what was to come.

Sales fell to 13.2 million units in 2008 and plunged dangerously low to 10.4 million in 2009. That’s when the U.S. economy seized up. To make matters worse, credit markets froze, causing the credit-driven auto industry to wash up on the shores of the Ross Sea in Antarctica.

In 2009, NADA staged its convention in New Orleans, which, recovering from the devastation of Hurricane Katrina, seemed like an eerily appropriate place to meet.

Dealers drew parallels between the natural disaster that occurred and the economic one that was occurring. Conventioneers talked a lot about surviving, a feat some dealers would fail to do.

It’s a good bet the mood of the Las Vegas convention this Feb. 3-6 will reflect an industry that is on the upswing. WardsAuto predicts light-vehicle sales at 14 million units this year, as the industry takes one rehabilitative step after another toward full recovery.

WardsAuto forecasts sales to reach 16.3 million in 2015, taking the industry back to the way things were before hard times hit.

But what’s to come should be a “sweet 16,” a profitable 16 million, because auto makers and dealers have right-sized their operations. It is vastly better to sell 16 million vehicles and make money than it is to sell 17 million and lose money.  

This year’s convention registration is up nearly 30%, NADA says. The expo floor is sold out. The trade group estimates total attendance to top 20,000 participants.

“There’s positive momentum in the auto industry right now,” says NADA spokesman Charles Cyrill. “We witnessed it firsthand in Detroit at the North American International Auto Show in January. It is carrying over to the NADA convention in Las Vegas.”

Glitzy Las Vegas and gritty Detroit are different, yet each has gone through a lot lately for similar reasons.

Economic ills are not new to the city of Detroit, but when “Detroit,” the auto industry, got sick a few years ago, the city ended up barely breathing. 

Las Vegas also has felt the pain of recent hard times. Ironically, the city had fooled itself into thinking it was immune from economic downswings, says Keith Schwer, an economics professor at the University of Nevada at Las Vegas.

“Las Vegas thought it figured out how to become recession-proof,” Schwer told me. It hadn’t. The domestic auto industry built too many cars and pushed them on the market, creating a glut. Las Vegas did something similar.

It built too many homes and hotels, on the presumption that people would keep coming. Supply began to outpace demand. And then the recession came to really mess up things.

Sixty percent of home mortgages in Las Vegas are upside down. Unemployment is 12.5% compared with the national average of 8.6%.

The casino hotels haven’t been immune to the ill effects of overbuilding. The swanky Cosmopolitan opened in December 2010 and cost $4 billion to build. It lost $56.8 million in one quarter last year.

Like Detroit, Las Vegas discovered that when times get tough, consumers get tight with their reduced disposable income, thinking twice about buying a new car or traveling to a gambling mecca.

It was a tough lesson, but auto makers and dealers learned to streamline their operations, show discipline and better match supply to demand.

Las Vegas is learning that too, after losing a lot of money on bad investment bets and reckless land development.

For visitors, though, it remains a fun city, and NADA conventioneers plan to enjoy themselves. They deserve that after all they’ve been through.

But it is one thing for conventioneers to let loose. No harm there. It is another thing for Detroit or Las Vegas to act kooky. That’s when a lot of people can get hurt.

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