The Economic Crisis

I’m writing this as Congress debates how to deal with the current economic crisis that is stifling most of the nations business endeavors including, of course, the automotive industry. Reports are that at the present time there is very little action in the used vehicle marketplace, certainly not a surprise given the economic climate. With the exception of lease terminations and program vehicles there is very little supply. While that might normally signal an upturn in market conditions, a similar lack of demand is, it seems, creating a stagnant market that may very well have nowhere to go but down as we enter the normally sluggish months of October and November.

Previous to the economic crisis we were experiencing some renewed vigor in the segments that had been hardest hit by the spike in fuel prices. Our best guess is that those gains will be forfeited in the near future as the poor business climate and seasonal stagnation take their toll. We’ve already seen a “back-to-reality” movement among those highly fuel efficient vehicles that had captured consumers’ fancy until there were no other delusional retail buyers left out there willing to pay the exorbitant prices necessary to own such a vehicle. Most of the more mainstream economy segment should hold up quite well in the near future as we expect very little supply in that segment and continued reasonable demand.

We continue to think that relatively high levels of lease terminations among the European and Asian luxury segment will overwhelm demand and that that market segment will remain weak. One wonders, however, how cheap these vehicles can get before they begin bumping up against the near luxury segment. When you can buy an ’06 Mercedes S350 for very similar money to an ‘06 Infinity M35, it gives one pause for thought.

While full-size pickups and SUVs had gotten so cheap they actually regained some desirability and accompanying price recovery in recent weeks, we think they will once again begin to falter as we enter the winter months and the sluggish economy forces consumers to pay increasing attention to fuel prices.

Of course all bets are off if the government doesn’t do something to jolt the economy out of its current dismal state.

Dan Galves