Bright Auto Sales Season Has Wall Street Worried
|   Wednesday, August 20, 2014
As the cash registers ring at dealerships across the country who have been having one of the best summer sales seasons in years, analysts at financial firms on Wall Street are worried.

They are worried the auto industry has over-expanded as they see a five-year boom/bust sales cycle and the analysts believe that the industry has expanded to the point that to keep sales at a 17 million car yearly rate, the dealers will have to start using creative financing and huge incentives to keep cars moving.


It's funny, though, that dealers are just worried about keeping the right cars coming down the pipeline and having enough of them in stock to satisfy demand. For example, Mike Fullmer, general manager at Fox Ford/Lincoln in Chicago told CNBC recently that "I'm concerned about having cars... This has been a really good month."

One would think that Wall Street was the fount of all knowledge about every industry, however, there is a big exception to that rule, unless the company is publicly traded on the Wall Street Big Board, all the analysts are doing is sounding a warning of gloom and doom in a time when dealers are moving cars out at a prodigious rate.

"We're pulling from the future and it's worrisome," said Adam Jonas analyst at Morgan Stanley. It's a puzzling statement from a supposed long-time observer of the market. You can't pull car sales from the past as every sale at a dealership is from a current or future customer. Jonas seems to be sounding an alarm on a problem that isn't even on the horizon yet.

Actually, notes CNBC, Jonas was just voicing a fear among analysts that the industry has expanded its production capacity too much and they will be left with a surplus of cars that will encourage auto dealers to use creative financing and big incentives to hit the 17-million car mark next year.

Yet, the industry is already using some creative ideas right now to get people into new cars. For example, the old 60-month standard loan has given way to the 70-month loan. This enables dealers to keep monthly payments very low, Jonas said. He was also worried about the 30 percent penetration of leasing this year versus last year's 26 percent.
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