By BOB GRITZINGER | Contributing Editor Car companies can’t live…
In March, we reported on the devastating tsunami that struck Japan and its impact on Subaru here in the United States. In Be Car Chic’s first-ever “Industry Pulse” feature column, Jeff Morrill, who owns and operates Planet Subaru in Hanover, Mass., provided insight into the situation at the dealer level that had not yet been reported in the mainstream media. Click here to read Industry Pulse: Subaru dealer talks tsunami after-effects.
The topic of the tsunami and its impact on the Japanese automaker remains one of the top traffic sources to this blog. That’s why, when I recently caught up with Morrill, I asked him to provide BCC an update. Below is a break-down of what he has witnessed as the largest Subaru dealer in the country over the past six months. Jeff also touches on his outlook for the coming months.
We wish the Japanese the best as they continue to rebuild their country and their economy. As we expected, they have shown resilience and determination during this crisis.
-Jeff Morrill, Dealer Principal
Planet Subaru in Hanover, Mass.
Following Jeff’s thoughts, check out the infographic showing Subaru’s stagnant sales numbers between March and September 2011. Comparing his account of Subaru product availability to the final sales numbers paints a pretty dismal picture for the Japanese car maker. But while Subaru may have been down, they’re certainly not out.
The Past Six Months – A Recap from Planet Subaru dealer, Jeff Morrill
The Japanese auto manufacturing industry has mostly recovered six months after the tragic March 11, 2011 earthquake and tsunami that devastated the country and caused significant loss of life. The economic ripples affected our family-owned Subaru dealership near Boston, Massachusetts.
Fuji Heavy Industries (Subaru of America’s parent company) was already working overtime to manufacture enough cars to meet North American demand. Subaru was allocating approximately forty cars per month to Planet Subaru.
The earthquake occurred on March 11. We did not run short on cars immediately because many were already built and on their way. We learned that our subsequent allocations would total about half of what we were previously earning…down to approximately twenty new units per month.
Within weeks of the earthquake, fearing empty parking lots, Subaru dealers immediately went on a used Subaru buying spree. Depending on the model, wholesale prices rose $1,500 to $2,000, almost overnight. Retail prices did not immediately rise, causing tremendous pressure on our used car margins.
We were able to maintain our new volume as vehicles built before the earthquake continued to arrive. Used volume began to deteriorate as we declined to participate in panic buying. We struggled to find clean vehicles at a price that would allow us offer a good value to retail buyers. Our used car inventory plummeted because we were not replenishing it.
The Summer – May, June, July, August
New vehicles became relatively scarce during the summer, right at the time that we experience the greatest demand. Transaction prices rose to historically high levels, at or near MSRP for some models. Rising new car transaction prices raised used car transaction prices, allowing us to wade back into the frothy auction waters. We found ourselves buying cars wholesale at prices we had retailed the same car before the earthquake.
Fuji’s production is more or less back to normal and we expect to see allocations at pre-quake levels before the end of the year. Currently, though, inventory is still short, and will remain so throughout the Fall. We sold 53 new vehicles in September; we only have 25 in stock as of this writing. Used car prices remain high, but stable, and we are rebuilding our inventory.
Jump over this infographic to read what Morrill sees for Subaru in the next six months.
What Morrill Sees for Subaru in the Next Six Months
Fortunately, the road ahead looks a little better than the battered pavement behind us.
The halcyon days of the 17-million unit new car industry in the United States may be gone forever, but the 11- or 12-million unit years of recent memory cannot continue because there’s just too much pent-up demand.
Now trending: driving cars into the ground
As it is, [Planet Subaru] wholesales nearly all of our trades because [the vehicles] are at or near the end of their useful lives. In many cases, our customers are trading vehicles that are simply unsafe to drive. Some arrive on tow trucks, unable to drive under their own power. For many, buying a new or used car is not an option, it’s a necessity. This trend will continue to drive sales as scrappage rates exceed production rates.
A car-building diet
Manufacturers have less excess production capacity than they did before the 2008 financial crisis. The Chrysler and General Motors bankruptcies proved empirically that profits and production discipline go hand-in-hand. Industry-wide, a better match between supply and demand should buoy dealer margins on new vehicles for at least the next few months and up to a year.
Used car ghost town
Used car scarcity will continue. We are already referring internally to 2009 as the “phantom model year” because there were so few 2009 vehicles leased that we can’t find them anywhere. The aggressive, creative dealers who source their used inventory from a wide variety of channels will continue to prosper with used vehicle sales. This climate favors nimble dealers.