Cox Q3 Report Offers Hope, Headwinds

By Jeffery Bellant October 01, 2019

Economists raised caution signals even as retail used sales increased and employment remains strong.

A presentation of the Cox Automotive Q3 Auto Sales report in a conference call Sept. 26 provided a mixed message about the state of the industry.

“It seems that all of our bets are principally on lower interest rates,” said Chief Economist Jonathan Smoke, “helping the consumer continue the spending that’s essentially what’s driving this entire economy so far this year.”

Smoke said the strongest part of the economy continues to be employment along with strong wage growth.

“However, the average consumers (are) not seeing their financial conditions improve quite like they were last year,” Smoke said.

The added benefit for tax reform boosted disposable income last year, he said.

Smoke warned that a University of Michigan study showed a dip in consumer confidence, which often translates into slower spending on purchases like automobiles.

On the auto finance side, the industry is at “historic levels” for loans and leases, Smoke said.

“That’s not necessarily a good thing,” he said.

A lot of that is in longer terms, which makes a consumer less likely to make another purchase in the shorter term.

Numbers show a decline in subprime activity and concerns about delinquency in that segment.

Buyers with super-prime credit (above 760 FICO) are seeing drops by about a half point from the beginning of the year. But subprime borrowers (under 620), rates have gone up 1.6 percent.

“So far in September, what we’ve seen for the average approved subprime loan on a new vehicle is clocking in at 18 percent APR.

“That’s a really tough number, especially when you combine that with where new vehicleprices have gone,” Smoke said.

Dealer sentiment overall is down, but franchise dealers view the market as stronger than used-car dealers.

Smoke said franchisees are viewing used-car sales as strong, while independents are viewing those sales as weak, with tighter consumer credit.

“But equally important, (independents) are limited in inventory,” Smoke said. “In fact, (they) are telling us that the inventory of used vehicles that are feeding the independent portion of the market is actually on the decline.”

Franchises, however, are more worried about tariffs, which Smoke referred to as a “wild card.”


Charlie Chesbrough, Cox senior economist, said light vehicle sales saw a peak in April 2016, when dealer sentiment peaked.

But Chesbrough said the market seems to be retracting after the brief “sugar high” of tax reform.

Chesbrough said light vehicle sales are down on the retail purchase side (-4.7 percentand the retail lease side (-2 percent).

However, U.S. auto sales are expected to beat Cox’s forecast of 16.8 million for one main reason.

“It’s really fleet activity that’s been supporting the market,” Chesbrough said. “We theorized that tax reform has really juiced fleet activity because of massive changes done to depreciation allowances.”

Businesses can purchase new or used vehicles and depreciate, sometimes, up to 100 percent of that vehicle’s cost within the first year, he said.

Cox expected fleet activity to rise about 4 percent, but year to date it’s risen over 9 percent.

“The question is, how long can this last?” Chesbrough said.

Leasing is down, but doing better than Cox predicted, while retail purchases are worse than Cox predicted.

Chesbrough blames the affordability issue, which makes leasing more attractive.

Threats to the industry for the rest of the year include the after-effects of the bombings in Saudi Arabia, a prolonged GM strike (which was ongoing at press time) along with incentive pricing, tariffs and the impeachment fight in Washington, D.C.

In the report’s brand share section, RAM showed the biggest gains, along with Honda, Kia and Subaru.  Those registering the biggest drop in brand share were Chevrolet, Nissan and Chrysler.

“These are not massive changes,” Chesbrough said. “We’re talking at most a 0.5 percent change in share. 

For Chevrolet, the ending of the Cruze model is part of the dip, along with the Silverado losing some ground against RAM, Chesbrough said.

He noted, however, that Chevrolet has pulled back from the rental market which may have an effect on total share.

Ford is increasing its share of the rental market.

One of the key stories  on the luxury market is  the strong showing of “Value Luxury,”  with the South Korean brand Genesis increasing share along with Buick.

“The G70 is doing quite well,” Chesbrough said.

The biggest losers in the “Luxury Share” category are Infiniti and Mercedes, he said.

For Mercedes, there is a lot of off-lease product that is competing with their new cars, which is proving “troublesome,” Chesbrough said.

In terms of segment share, the “Mid-size SUV” segment has  the strongest share, while “Compact Cars” have dropped the most.

Chesbrough attributes the boost of mid-sized SUVs to the influx of new vehicles in that space.

Smoke wrapped up the conference call by warning that the fourth quarter could be a rough one. He cites concerns about tariffs, the Oct. 31 Brexit exit and the new NAFTA deal, known as USCMA.

But Smoke offered good news with a forecast that retail used vehicle sales will be up compared to the dip in retail new vehicle sales.


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Last modified on Tuesday, 01 October 2019 15:50