By Jennifer Reed, SubPrime Auto Finance News Editor

January 21, 2008

BANDON, Ore. — The used-vehicle industry will receive a "shock" this year, according to Art Spinella, of CNW Research.



Why? CNW Research is forecasting a 9-percent decline in used-vehicle purchasing intentions. Only 15.6 percent of consumers questioned indicated that buying a used model is on their to-do list this year.

"That compares with 17.2 percent of respondents a year ago," Spinella said. "Like the new-car side, used-car intenders are planning to spend 3.3 percent less on major acquisitions in 2008 than they did in 2007, which is even further support for the notion the country is entering a recession that could last at least through this year."

"Anticipated budgets for other goods and services, such as new or used cars, vacations, both foreign and in the U.S., are being slashed," he continued.

In fact, according to Spinella, the only positive note of the coming year is that consumers have moved new-vehicle purchases higher on their wish lists than last year.

"Why is this important? Generally, like to-do list, previous wish list studies have shown the top eight to 10 items actually get done while the rest of the list languishes and is postponed or the order is shuffled," he said. "Buying a new vehicle placed 10, up from a year ago."



In another interesting analysis, CNW discovered that the average age of new-vehicle buyers has been increasing throughout 2007, coming in at almost 48 years old. This is the highest average since October 2002, executives indicated.

"The increase reflects fewer consumers under age 40 making a new-vehicle acquisition rather than older consumers buying an increased number of cars and trucks," Spinella said.

"The good news is that these younger consumers continue to shop for a vehicle as seen in the average of new-vehicle floor traffic remaining unchanged in the last quarter of 2007 versus the final quarter of 2006. They simply aren't buying," he pointed out.

Moreover, CNW found that the average income of new-vehicle buyers grew to $64,000 in December, compared with $60,000 in January of last year, which also indicates an older buying demographic.

"Home equity contraction, personal debt issues and concerns about the overall economy impact younger consumers more than older ones," Spinella explained.

"From an advertising and marketing standpoint, however, continuing to focus attention on these consumers is a good strategy," he reported. "They continue shopping and eventually all will come back to the market."



Further reviewing the reasons why younger consumers may not be as interested in new or used vehicles as in past years, Spinella boiled it down to one trend — the evolution of communication.

"In the follow-up survey, the reason for autos' decline in the youngest data cut can be found in the group's changing method of social networking," Spinella said. "In the past, a car — new or used — was the primary way of hooking up with friends whether at a mall or other meeting places, excluding school events.

"Today, text and photo messaging via cell phone has replaced face-to-face interaction as a primary source of communication," he highlighted.

More specifically, here's the list of what young consumers see as items that will impress their friends:



Cell phone: first in 2007; third in 2000



Game system: second; seventh in 2000



iPod/MP3 Player: third; second



Footwear: fourth; fifth



Computer system: fifth; fourth in 2000



Apple/Mac: 5-b in 2007; 4-b



Other specialty system: 5-c; 4-c



Alienware: 5-a; 4-a



New vehicle: sixth; first in 2000



Clothes: seventh; eighth



Digital cameras: eighth in 2007; sixth



Used vehicle: ninth; ninth



Furnishings: 10th; 10th in 2000



"In the calendar year 2000 youth study, a new vehicle was listed by 34 percent of 16- to 29-year-olds as a way to impress a friend," Spinella said. "That fell to under 20 percent in the 2007 study.

"A cell phone jumped from third to first in the rankings, while a new vehicle dropped from first to sixth," he added. "Among 16- to 22-year-olds, the decline is even more dramatic with new vehicle falling to 13 percent and ninth position. A used vehicle didn't even make the top 10."



Continuing on, CNW reported that for the first time since 1999, combined new- and used-vehicle sales dropped to less than 58 million units in 2007. This was even as the U.S. population climbed by more than 30 million individuals and 10 million households.

Over the years, Spinella said usually new-car intenders will switch to used cars when the economy struggles and prices increase. With this shift taken into account over years past, combined new- and used-vehicle sales generally came in at 59 to 61 million.

"The 2.2 percent drop in 2007 versus 2006 is the first year since 1999 to be directly impacted by a weak economy keeping both new- and used-car intenders away from showrooms and lots," Spinella said.



Looking ahead, he indicated, "New-car sales may well exceed 2007, if only by a fraction of a percentage point, but used sales are the wild card. With the decline of intentions, it is possible the used-car business will see a significant contraction that would keep total vehicle sales in the 57.9 million to 58 million range," he continued.

Finally, if combined sales do remain below the historical norm since 1999, Spinella said, "Hardest hit? Stage budgets. In most states, upwards of 20 percent of all tax revenue comes from the sale of new and used cars. Any significant decline in unit volume directly impacts income and puts most states into the red.

"A key reason California is suffering a budget crisis — again — is because auto sales have dramatically dropped on the back of a poor housing market," Spinella concluded.

1/21/2008