Let the good times roll

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Can record sales continue? It’s tough to predict in these uncertain times.

Coming off years of sales and revenue growth, and a fourth consecutive sales record for new cars (just under 1.95 million sold in 2016), it is tempting to sit back and let the good times roll.

Automobile dealers have largely been shielded from the storms buffeting other retail sectors by virtue of the simple fact that for a purchase as significant and infrequent as a vehicle, seeing, feeling, touching and smelling the thing before parting with tens of thousands of dollars remains key.

Kicking the tires, in other words, can’t take place online, and so dealers have thrived in an era of unprecedented consumer value in the industry, with the best product in history being offered at historically competitive prices.

And consumers have played their part in the success of recent years, driving off with millions of new vehicles and providing dealers with record revenues each of the past several years.

But past performance is no predictor of future returns, and while the fundamentals of our industry remain strong — product choice and quality will only continue to improve as OEMs invest billions to bring competitive products to market — some perspective is valuable.

First of all, the level of consumer indebtedness that is supporting today’s sales levels cannot be overlooked.

Of course debt has always been an important part of our sales, and 9 out of 10 new car buyers require financing of some sort to complete the transaction.

Emergence of ultra-long loans

There has been an increased (some would say over-) reliance on ultra-long loans to bring down the monthly (or even weekly) payment to as low a number as possible.

Much of this increased amortization is supported by longer-lasting vehicles, of course, but even the positive trend of cars lasting longer does not bode well for future sales. Neither does the over-reliance on loan terms approaching 100 months in some cases.

There is also the matter of our persistently mediocre levels of economic growth. We are no longer world-beaters in this regard, and while our total growth since 2009 looks strong compared to G7 counterparts, most of that over-performance took place in the first half of the time
period since the recession.

In more recent years, we are at best in the middle of the pack in terms of rich-country growth. Most projections for this year have us under the two per cent level, which is hardly spectacular.

In more recent years, we are at best in the middle of the pack in terms of rich-country growth. Most projections for this year have us under the two per cent level, which is hardly spectacular.

Growth not spectacular

An important indicator such as new vehicle sales cannot continue to outpace economic growth forever, as it has for several years now. And even with the record set in 2016, sales growth was only a little better than two per cent over the previous year.

That is to say, our own growth is finally starting to more closely resemble overall economic growth, which no one is predicting will be very strong this year or in the immediate future.

Finally, and most topical in today’s newspapers and office banter, is the situation south of the border. The world is now reckoning with the most protectionist American administration in the post-war era, and with American leadership that seems intent on abandoning its vital role of guarantor of global trade and peace (economic and otherwise).

Here in Canada — though we’ve received assurances that most of Washington’s trade guns will be aimed south across the Mexican border — it is hard to conclude that there will be no collateral damage to the world’s most valuable two-way trading relationship.

Even if we manage to avoid the erection of punitive trade barriers along the 49th, it is not hard to predict major negative economic consequences in the U.S. if President Trump follows through on even his domestic economic platform. If he sparks a trade war with Mexico, or China, and trips the American economy into recession, we will feel it at home no matter how deft our diplomacy.

All that said we remain in a very strong position. Had you told most industry players in 2009 we would be at a 2 million market in 2016 and 2017, you may have been laughed out of the room.

Memories are short so we must avoid the temptation to assume that because we’ve set four records in a row, we will definitely repeat the trick this year.

Recent events have shown us that the real world can play havoc with even the most level-headed of forecasts. So let the good times roll, indeed, but as they do it is always prudent to keep an eye on the horizon for times that may be slightly less good than they are today.

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Canadian auto dealer