Fleet Sales and Push Marketing
In April I wrote a column on the auto industry’s continuation of “push marketing,” despite assertions from the industry acknowledging the ills created by the practice. I wrote the column in the context of Toyota’s public relations and sales challenges. In response to a severe sales downturn, in the wake of the safety recalls and associated adverse publicity, Toyota bought back market share with huge incentives. This precipitated a similar effort by Toyota’s competitors in an effort to keep pace. This effort included the recently bankrupt GM and Chrysler, who had specifically disavowed “puh marketing” as a part of restructuring. The incentives included rebates, subvented financing, dealer “trunk money,” and optimistic lease subventions. In the case of Chrysler there have also been additional payments to consumers who use leasing or residual based financing through credit unions and other independent lenders.
Along the same lines, I am reading a new book, written by ex dealer Mark Ragsdale, entitled “Car Wreck, How You Got Rear-Ended, Run Over & Crushed by the U.S. Auto Industry.” In the book Ragsdale rails against “push marketing” practices employed by OEMs to artificially boost sales. He details how “push marketing” has contributed to the issue of “negative equity” in consumer trade ins and how this has led to increasingly longer term financing, rebates, diminished resale value, and the vicious circle that has rendered a huge percentage of consumers “un-financeable,” even those who are employed.
“Push marketing” strategies also include aggressive fleet sales. Noted automotive journalist, Jim Henry, recently provided input on the most recent June sales figures by noting that “fleet sales for the month were up 59% over the same period last year to just over 200,000 units." To be fair, last year at this time Chrysler and GM were in the throes of their bankruptcies. The Asset Backed Securities market, which had provided financing for most fleet and rental units, was barely functioning. This year the huge increase in fleet volume has been largely due to the replenishment of daily rental fleets due to an increased availability of funding and pent up demand. As I rent vehicles these days, I am no longer provided a beat up 40,000 mile “beater.” While this rental replenishment is a good thing, and indicative of renewed health in the ABS market, it should not be construed as evidence of a real retail resurgence.
There is an underlying weakness in retail demand in the automotive market at a time when real good news is desperately needed. The retail SAAR for June came in at only 8.6 million units, according to J. D. Power. This is down from May 2010. While fleet sales are much more profitable than before for the D3 due to the recent restructurings, it is retail demand that the economy and the auto industry desperately needs. GM and Chrysler are positioning for initial public stock offerings, GM as soon as the first week of July. Used car values are at historical highs, which should somewhat alleviate consumers’ negative equity positions in their trade ins. But the average trade in is a much higher mileage vehicle these days due to consumers, fleets, and rental companies having had to hold on to vehicles longer. The OEMs are able to break even or make money on lower retail sales even while paying huge incentives. The Detroit 3 no longer are required to pay UAW members to stay home and watch Oprah in the case of a plant shutdown. But consumer confidence is still weak and unemployment high. The European financial problems have shaken investors, which has been reflected by the recent drop in the Dow Jones average. This has rubbed off on consumers. Yes, the country's economic recovery is proceeding at a slower pace than expected.
As long as financing for fleet and rental sales is available we might expect to see an even higher sales rate of these subsidized sales. Under “normal” circumstances we might be complaining about how these fleet and rental sales contribute to the rapid depreciation of like model pre-owned vehicles recently purchased by consumers, contributing to their negative equity situation. But in today’s environment, aggressive short term lease subventions and aggressive daily rental recycling just may be the ticket to bolster the industry until other fundamentals have time to fall into place. In addition, the current and future pre-owned market needs the availability of additional pre-owned inventory. As always, it’s a question of balance. Will the industry know when to hit the brake pedal on fleet and rental sales?
Wards July 2010
Wednesday
Please Help Chris Zimmerman
Hello Yupette,
Arlington County Board and WMATA Board member Chris Zimmerman needs help answering the following question:
What happens when 85,000 Metrorail commuters from Tysons and Dulles reach the East Falls Church Metro station at 8 AM weekdays?
Thanks in advance for helping Chris.
Tom - Leeway-Overlea
Arlington County Board and WMATA Board member Chris Zimmerman needs help answering the following question:
What happens when 85,000 Metrorail commuters from Tysons and Dulles reach the East Falls Church Metro station at 8 AM weekdays?
Thanks in advance for helping Chris.
Tom - Leeway-Overlea
Tuesday
County Allows Gentrification Contractor Dumping at Pike Recycling Site
Hello Yupette,
Have you visited the recycling site on Columbia Pike at Four Mile Run on weekends recently? The County is allowing contractors who are working on gentrification projects to dump debris at the recycling site, including mixed with the recycled cans and bottles. Sunday I saw that some group that had a large picnic dumped about 20 large bags of food waste off at the site. Disgusting. This is in Chris Zimmerman's neighborhood and when I asked the County Manager's office what could be done they said "We're working on it".
Pikester
Have you visited the recycling site on Columbia Pike at Four Mile Run on weekends recently? The County is allowing contractors who are working on gentrification projects to dump debris at the recycling site, including mixed with the recycled cans and bottles. Sunday I saw that some group that had a large picnic dumped about 20 large bags of food waste off at the site. Disgusting. This is in Chris Zimmerman's neighborhood and when I asked the County Manager's office what could be done they said "We're working on it".
Pikester
Monday
How do you like your cone?
Part I
Where will growth come from, as the stimulus money runs out? – though the construction portion will keep being shoveled out for months to come. The dollar is weak against the Canadian dollar, the yen and the yuan, but not against the euro and has strengthened against the Mexican peso. So exports? – not likely. And exports simply aren't a big enough slice of our economy (about 10%) and are more sensitive to foreign incomes. Good for exports to China, but not otherwise. It keeps US imports low, too, but that's a reflection of bad news, not a source of good news.
What of the consumer? Unemployment remains high, and long-term unemployment is at record levels. Job losses remain high, so there's uncertainty. For the rich, who tend to save, capital gains and dividends and corporate bonuses remain low.
Investment still faces a housing and now a commercial real estate slump. We have, at least for a couple more years, too many houses and too many strip malls and office buildings for our population and income. Manufacturing is ticking upwards, but from a very low base; car sales may be 20% above their bottom in 2008-9, but remain 30% below peak levels.
Then there's government. The city across the valley from me is likely to go into receivership, lose its charter and revert to town status. Northern Michigan, which I just left, remains depressed. The local marina, which for years provided a big boost to city income, has almost no seasonal slips rented; there used to be a waiting list. Transient rentals and fuel sales were nil on some days the past two weeks. And over everything hangs the fiscal situation of California and Illinois. State and local government continue to lay off employees, even as the Federal government has stopped hiring.
So how do you like your cone? We're an obese society; we had an obese economy. Double-dip goes without asking. But there is a triple-dip crowd. You have to beg for a single dip, and we're not doing that.
Part II
Congress seems to be (wrongly) spooked by deficit hawks, and may go into reverse mode. Ironically, by prolonging the recession(s), that will live us in a worse fiscal position, because most of our current deficit is the result of slow growth – falling revenues – and not a burst of expenditures.
Unfortunately post-banking-bubble recoveries tend to be slow, because it is structural distortions (too many houses) that have to be unwound, and short of buying up and bulldozing new developments, there's no quick way to do that. (We also have a growing population, so we will eventually have demand, and when retiring baby boomers can sell their houses, that will spill over even into such examples of excess as Las Vegas.)
A new working paper by M. Miyazaki from the International Monetary Fund makes the (with hindsight!) obvious point that the news is worse than that: revenues tend to grow with the economy, not faster than the economy, and so are very slow to recover to earlier levels. (See In Search of Lost Revenue, which is at the non-technical end of the spectrum of IMF working papers: you don't need an economics PhD to read it.)
Now it's conceivable that we could cut expenditures to speed the process. But we seem to have a proclivity for war, and for getting older. While I'd like to see us change the former, I have a vested interest in the latter, as does everyone reading this. And demand for most of the rest of what the government does, federal, state, and local, is a function of population. The US has a small government, in international comparison, so it's hard to find ways to significantly cut expenditures. Plus the last time I looked, we could cut all non-defense, non-aging related expenditures at the Federal level and still have a deficit.
Let's not kid ourselves: if revenue doesn't recover on its own and since expenditures can't be cut, then at some point we need to enhance revenues. A lot. My preferred alternative would be a national value added tax.
But demagoguery aside, there's no urgency; interest rates remain at record lows, and not just on short-term debt. However, we can't wait a decade before doing so. Hence even if Obama does not do so – it's hard to see that happening – the next president must. It will be a disaster if the radical right trumps conservative sensibility and precludes that presidential campaign from being over how to raise taxes, not whether to raise them.
Where will growth come from, as the stimulus money runs out? – though the construction portion will keep being shoveled out for months to come. The dollar is weak against the Canadian dollar, the yen and the yuan, but not against the euro and has strengthened against the Mexican peso. So exports? – not likely. And exports simply aren't a big enough slice of our economy (about 10%) and are more sensitive to foreign incomes. Good for exports to China, but not otherwise. It keeps US imports low, too, but that's a reflection of bad news, not a source of good news.
What of the consumer? Unemployment remains high, and long-term unemployment is at record levels. Job losses remain high, so there's uncertainty. For the rich, who tend to save, capital gains and dividends and corporate bonuses remain low.
Investment still faces a housing and now a commercial real estate slump. We have, at least for a couple more years, too many houses and too many strip malls and office buildings for our population and income. Manufacturing is ticking upwards, but from a very low base; car sales may be 20% above their bottom in 2008-9, but remain 30% below peak levels.
Then there's government. The city across the valley from me is likely to go into receivership, lose its charter and revert to town status. Northern Michigan, which I just left, remains depressed. The local marina, which for years provided a big boost to city income, has almost no seasonal slips rented; there used to be a waiting list. Transient rentals and fuel sales were nil on some days the past two weeks. And over everything hangs the fiscal situation of California and Illinois. State and local government continue to lay off employees, even as the Federal government has stopped hiring.
So how do you like your cone? We're an obese society; we had an obese economy. Double-dip goes without asking. But there is a triple-dip crowd. You have to beg for a single dip, and we're not doing that.
Part II
Congress seems to be (wrongly) spooked by deficit hawks, and may go into reverse mode. Ironically, by prolonging the recession(s), that will live us in a worse fiscal position, because most of our current deficit is the result of slow growth – falling revenues – and not a burst of expenditures.
Unfortunately post-banking-bubble recoveries tend to be slow, because it is structural distortions (too many houses) that have to be unwound, and short of buying up and bulldozing new developments, there's no quick way to do that. (We also have a growing population, so we will eventually have demand, and when retiring baby boomers can sell their houses, that will spill over even into such examples of excess as Las Vegas.)
A new working paper by M. Miyazaki from the International Monetary Fund makes the (with hindsight!) obvious point that the news is worse than that: revenues tend to grow with the economy, not faster than the economy, and so are very slow to recover to earlier levels. (See In Search of Lost Revenue, which is at the non-technical end of the spectrum of IMF working papers: you don't need an economics PhD to read it.)
Now it's conceivable that we could cut expenditures to speed the process. But we seem to have a proclivity for war, and for getting older. While I'd like to see us change the former, I have a vested interest in the latter, as does everyone reading this. And demand for most of the rest of what the government does, federal, state, and local, is a function of population. The US has a small government, in international comparison, so it's hard to find ways to significantly cut expenditures. Plus the last time I looked, we could cut all non-defense, non-aging related expenditures at the Federal level and still have a deficit.
Let's not kid ourselves: if revenue doesn't recover on its own and since expenditures can't be cut, then at some point we need to enhance revenues. A lot. My preferred alternative would be a national value added tax.
But demagoguery aside, there's no urgency; interest rates remain at record lows, and not just on short-term debt. However, we can't wait a decade before doing so. Hence even if Obama does not do so – it's hard to see that happening – the next president must. It will be a disaster if the radical right trumps conservative sensibility and precludes that presidential campaign from being over how to raise taxes, not whether to raise them.
Mike Smitka
Sunday
CIP Takes from Middle Class to Fund Pet In-fill Gentrification Projects
Hi Yupette,
Seen the County's new Capital Improvement Program? It's a blatant rip off of the middle class to fund the County Board's pet Gentrification projects. Like the mess Zimmerman wants to build at the EFC Metro Station that only a Yuptard could love.
Tom - Leeway-Overlea
Seen the County's new Capital Improvement Program? It's a blatant rip off of the middle class to fund the County Board's pet Gentrification projects. Like the mess Zimmerman wants to build at the EFC Metro Station that only a Yuptard could love.
Tom - Leeway-Overlea
Massive Opposition Forced CB to Abandon Library Relocation Scam
Hello, Yupette,
It appears that it was only "massive resistance" by our neighborhood that prevented our local library from being relocated to Arlington Mill so Arlington Mill would become more attractive to developers.
Arlington County is run for and by developers. I believe that lots of these development and redevelopment "decision makers" are being paid-off, starting with the County Board.
Time for a change of government in Arlington County !!!
Terri - 22204
It appears that it was only "massive resistance" by our neighborhood that prevented our local library from being relocated to Arlington Mill so Arlington Mill would become more attractive to developers.
Arlington County is run for and by developers. I believe that lots of these development and redevelopment "decision makers" are being paid-off, starting with the County Board.
Time for a change of government in Arlington County !!!
Terri - 22204
Friday
Racist And Elitist County Board Prohibits On-Site Affordable Housing
Racist and Elitist County Board Members prohibited on-site affordable housing from being constructed at 1900 Wilson Blvd. at the June 15th County Board Meeting.
Thursday
Route 1 at Potomac Yards - Region's First Mega-Dumb Growth Mess
Responding to several requests for a thread related to Potomac Yards ""smart" growth.
A.Y.
A.Y.
Tuesday
EFC Metro Station Development - Another Zimmerman Dumb Growth Mess
Hi Yupette,
Plans for the East Falls Church metro Station Development are now on the County's Web Site and it's a classic Chris Zimmerman "Guru of Gridlock" Dumb Growth mess. But that's what we get for re-electing Chris Zimmerman and allowing him to pack planning committees with his hand picked Dumb Growth dummies.
Don - 22205
Plans for the East Falls Church metro Station Development are now on the County's Web Site and it's a classic Chris Zimmerman "Guru of Gridlock" Dumb Growth mess. But that's what we get for re-electing Chris Zimmerman and allowing him to pack planning committees with his hand picked Dumb Growth dummies.
Don - 22205
Sunday
Adults to Arlington County Board - Grow Up
Hello Yupette,
It was refreshing to see so many adults at yesterday's County Board meeting telling the Arlington Yuppie Board to Grow Up.
Also, despite serious harassment from Arlington Yuppiecrats, it appears the change-the-government petition already has enough signatures for a referendum to be on the ballot.
Mark
It was refreshing to see so many adults at yesterday's County Board meeting telling the Arlington Yuppie Board to Grow Up.
Also, despite serious harassment from Arlington Yuppiecrats, it appears the change-the-government petition already has enough signatures for a referendum to be on the ballot.
Mark
Tuesday
Many Arlington Residents Have Expressed Unhappiness With Rolling Thunder
Hello Yupette,
Thank you for your blog.
You should know that many Arlingtonians have expressed unhappiness about the noise and bad behavior from 'Rolling Thunder' We recently suggested that 'Rolling Thunder' move to a resort area like Virginia Beach and that 'Rolling Thunder' be replaced by bicycle and pedestrian events. We were ignored.
Thanks for trying to improve our quality of life, not cater to every special interest that wants to do its thing in Arlington.
Susan
Thank you for your blog.
You should know that many Arlingtonians have expressed unhappiness about the noise and bad behavior from 'Rolling Thunder' We recently suggested that 'Rolling Thunder' move to a resort area like Virginia Beach and that 'Rolling Thunder' be replaced by bicycle and pedestrian events. We were ignored.
Thanks for trying to improve our quality of life, not cater to every special interest that wants to do its thing in Arlington.
Susan
Saturday
Don't Want HOT Lanes? Stop Approving More Parking!
Hello, Yupette,
If the County Board is so hostile to HOT Lanes, why is the County Board on a roll to approve a lot of commuter parking spaces via new site plans this year?
Norm
If the County Board is so hostile to HOT Lanes, why is the County Board on a roll to approve a lot of commuter parking spaces via new site plans this year?
Norm
Thursday
Who Defends the Rights of Citizens to Sign Petitions?
Hi Yupette,
I am employed by Arlington County. I also signed the 'change of government petition'. We have a right to sign petitions, afforded to us by the U.S. Constitution. Who would I contact if I am demoted or fired for signing the petition?
Kim - DHS
I am employed by Arlington County. I also signed the 'change of government petition'. We have a right to sign petitions, afforded to us by the U.S. Constitution. Who would I contact if I am demoted or fired for signing the petition?
Kim - DHS
Wednesday
GE Controls Sun Gazette Parent and Finances Harley Dealers
Yupette, FYI,
Dis you know who controls the Sun Gazette Newspapers parent corporation - American Community Newspapers LLC? GE Capital Credit. Did you know who provides major financial services and lends hundreds of millions to Harley-Davidson dealers? GE Capital Credit and GE Credit Solutions.
Joan
Dis you know who controls the Sun Gazette Newspapers parent corporation - American Community Newspapers LLC? GE Capital Credit. Did you know who provides major financial services and lends hundreds of millions to Harley-Davidson dealers? GE Capital Credit and GE Credit Solutions.
Joan
Fisette Will Continue 'Boutique' Projects
Hi Yupette,
Last night County Board Chair Jay Fisette resisted requests from Civic Federation delegates to reverse his emphasis on 'boutique' projects and concentrate on basic infrastructure. So there's an aquatic center and a bunch of million dollar lighted soccer fields in our future.
22205
Last night County Board Chair Jay Fisette resisted requests from Civic Federation delegates to reverse his emphasis on 'boutique' projects and concentrate on basic infrastructure. So there's an aquatic center and a bunch of million dollar lighted soccer fields in our future.
22205
Tuesday
Virginia General Assembly Said....
Yupette, here is what the Virginia General Assembly had to say long before "Rolling Thunder" existed. It's in the Code of Virginia.
"It is hereby declared that the protection and preservation of the home is the keystone of democratic government that the public health and welfare and the good order of the community require that members of the community enjoy in their homes a feeling of WELL-BEING, TRANQUILITY, and PRIVACY"
Bethany
"It is hereby declared that the protection and preservation of the home is the keystone of democratic government that the public health and welfare and the good order of the community require that members of the community enjoy in their homes a feeling of WELL-BEING, TRANQUILITY, and PRIVACY"
Bethany
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