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This election is f^[email protected]'d, but...

Discussion in 'Off Topic & Everything Else' started by Alex Snyder, Oct 7, 2016.

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  1. Alex Snyder

    Alex Snyder
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    President Skroob

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    has it had any impact on your sales?

    https://www.ml.com/articles/how-presidential-elections-affect-the-markets.html

    Historically election years bring uncertainty and uncertainty is never a good thing for car sales. Bush vs. Gore was the first time I noticed it in my own paycheck. Aside from some "chads" the 2000 election wasn't nearly as nuts as Clinton vs. Trump.
     
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  3. joe.pistell

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    Oooo.. Interesting topic!
    I went to Google to find "SAAR vs Elections". Found none, so I built my own:
    upload_2016-10-10_7-58-7.png
    Red = Republican, Blue = Democrat. Grey = Recession.

    My decade as a Stock Trader* leads me to the following observations:
    1. SAAR may spend a decade > 16 million units (unless a recession hits)
    2. Speaking of recessions...
      • we're due for one ;-)
      • SAAR often falls BEORE a recession arrives (i.e. it's a leading indicator of our economy)
    3. Party change and recession are cousins (they're loosely connected)

    That was an interesting research project Alex!
    -Uncle Joe


    *I was a Technical Analyst
    ref: St Lois Fed
     
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    #2 joe.pistell, Oct 10, 2016
    Last edited: Oct 10, 2016
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  4. Jeff Kershner

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    Way to put this together Joe. Interesting to see.
     
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  5. joe.pistell

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    This coming election can be a trigger for economic change, especially if one party sweeps the election.

    Outside of the election, from a 5 Star Generals POV, you'll know big change is coming by watching Interest Rates AND Manheim's Used Car Price Index.

    Interest Rates:
    See the chart and realize how easy selling cars has been.
    upload_2016-10-12_9-44-0.png
    For fun, let's experiment with payments.
    Today, we're at 4.25%, what would happen if we returned to about 8% apr?

    $33,560 Avg price for a car in 2016
    *4.25% apr at 60 months
    $622 per month
    --vs--
    $33,560
    *8.00% apr at 60 months
    $680 per month

    Roughly $60 more per month. Not the end of the world. A payment buyer will need to find a car that's about $3000 less to keep the payments the same (it'll fuel used car demand ;-). Interest rates climb when the economy gets strong. IMO, it'll take years to get to 8% apr.


    Speaking of used car demand, Manheim Used Car Index thoughts will come tomorrow.

    HTH
    -Uncle Joe


    ref: Interest Rates https://fred.stlouisfed.org/series/TERMCBAUTO48NS
     
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  6. Jeff Kershner

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    I guess no one wants to jump into this arena.
     
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  7. ChrisR

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    I've noticed, historically, around presidential elections that sales slow down. Now with today's Fed announcement that they are likely to begin raising rates as soon as the election is over. If not for the election, it looks like they would have started that increase already.

    Curious to see the Manheim data, it seems like the time is about right for used prices to begin their seasonal fluctuations.
     
  8. mikesayre

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    I think @JoePistell@JoePistell is doing a fine job explaining the demand trends, I'll just sit back and learn something. :popcorn:

    The way I see it, there's always ebb & flow to consumer demand based on external factor's most of us can't control anyway. We just have to adjust to the current conditions, keep trying to get better every day, while making the most out of our time here.
     
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  9. joe.pistell

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  10. joe.pistell

    joe.pistell
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    Uncle Joe

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    Manheim's Used Car Index and your paycheck...
    (I'm short on time, so this is going to be a quick take on a highly complex topic.)

    Used cars are unique in that their intrinsic value is driven by their cash value at auction. No MRSP, no 3rd party creates the used car price, it's all driven by prices at auction. Auction prices are highly sensitive to supply and demand. Too much of either one and #BAM!! auction prices change instantly.

    Used car prices and new car sales are tied at the hip.
    High used car prices are the best of times for new car dealers. Lots of demand (& not enough supply) gives us a cinderella sales environment with high trade-in allowances, high residuals for low lease payments. Bank's are to blame, they want business and are liberal with book values. But... history has shown us, that in a blink of an eye, that all change.

    Thankfully, Manheim publishes a used vehicle index to allow us to see this chaos in a broader view.
    upload_2016-10-18_11-19-58.png
    [link]

    The red circled areas show us how highly sensitive auctions are
    upload_2016-10-18_11-21-31.png
    Selling cars in the "Red Zones" is not easy. It stresses every player in the store. Shoppers get defensive (take longer to shop), Banks raise rates & raise requirements on borrower's credit quality and drop the book value of the used car. Used car managers see their inventory go underwater fast, GSMs, GMs and DP either panic, or, (more often) go into denial ("don't take the loss, it'll come back...").

    I've been in stores as a CMO thru 3 of these "Red Zones". You see the DP in the store far more often and leadership cuts wayyyy back on ad spending and wants to roll cash into service ad spending (to save their ass ;-).


    Is there an early warning system? Yes.
    upload_2016-10-18_11-48-19.png
    Rising Interest rates slow the whole sales machine down. Keep an eye on interest rates and watch the sweat on the brow of your used car manager. If he/she's good*, they'll intuitively know all of this and they'll feel the pain months in advance of a full-on rout.

    That was fun :-) Hope this helps,
    -Uncle Joe

    p.s. lots of players are calling for a used car correction (sell off) http://www.autonews.com/article/20160822/RETAIL04/308229972/wheres-that-used-vehicle-price-plunge?


    *a shout out to Todd Caputo for some key insights in this model.
     
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  11. joe.pistell

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    Uncle Joe

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    p.p.s. I watched this in 08. Dealer's who fully adopt the 'Velocity' business model crush it in red zones. Dealer's that have learned how to turn inventory 100%-300% faster can be retailing cars (with a profit) that's less than the cost of their non-velocity competitors.
     
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