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CATA Bulletin
November 5, 2018

 

Economists say slowdown won't lead to recession

November 2, 2018

When the investor and issuer audience at ABS East was asked in October when the U.S. economy will enter a recession, 44 percent answered 24 to 36 months. However, chief economists challenged the audience’s opinion, arguing that the chances of an economic slowdown turning into a recession are unlikely.
 
"Recessions are very rare," said James Sweeney, chief economist and regional chief investment officer for the Americas at Credit Suisse. "In the U.S., we’ve had three since 1982. Now, when I look at the balance sheet fragilities in the [different sectors], I don’t see a high likelihood of interaction between balance sheet problems and growth that is going to turn an ordinary slowdown into a full-fledged recession."
The industry knows the Federal Reserve plans to keep raising rates, and lenders should be concerned about other vulnerabilities such as "where capital is being raised and where that is falling into corporate means," said William Lee, chief economist at the Milken Institute.
The shifting economy toward private financing is going to be the challenge of tomorrow, Lee said, noting that the U.S. financial systems are going more toward private finance, while public finance will be for large, established companies.
 
"How do we detect the balances?" Lee asked. "Each of you knows what’s going on in your fields, but no one on the regulatory side or policy side can look at [your business] for vulnerabilities that led to 2008. I’m not saying there are any, but the fact that no one knows or seems to know is what scares me."
 
 

Dealers can boost revenue with mobility-as-a-service model

November 2, 2018

Dealerships can increase customer loyalty and profitability by tapping into the mobility-as-a-service model, or MaaS, according to an executive at HyreCar, which provides a platform that matches ridesharing-service drivers with car owners who want to rent out their vehicles.
MaaS is the integration of various forms of transportation into an on-demand service that allows a person to complete a trip.  Mike Furnari, chief business development officer at HyreCar, said at a conference for finance managers that dealerships are getting into MaaS "as a way to rent vehicles, pull from their rental fee, and potentially flip that customer into a car sell."
Car dealerships, opposed to OEMs, have an advantage under this type of model because they offer a variety of vehicles and aren’t limited to particular brands.
Revenue, Furnari said, also could be increased through servicing channels.
"The service department at a dealership absolutely loves a subscription for a car and ridesharing model because they have 100 percent customer retention," Furnari said. "They know that customer is coming back to that service manager."
The dispersed nationwide network of dealerships makes them ideal for MaaS, Furnari said, adding that dealers could see quick payouts from mobility services.
"Dealers have the most to gain in mobility future right now," Furnari said. "Pick a car-sharing company, test it with one car, [and] dealers will start to see revenue within 24 hours."
The MaaS concept was created in Finland, where it now plays a key role in the nation’s transportation policy.
 
 

S&P/Experian report lower defaults on auto loans

November 2, 2018

Despite worries about auto affordability, U.S. consumers are financially in good shape on average, and one important measure — the default rate on auto loans — improved in September, according to the latest data from the S&P/Experian Consumer Credit Default Indices.
"The consumer’s financial position generally looks very good," said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "We don’t see any huge issues coming up." The indices are jointly developed by S&P Dow Jones Indices LLC and Experian.
For auto loans, the default rate was 0.89 percent for September 2018, down from 1.05 percent a year earlier. For the purposes of the report, auto loan defaults are defined as accounts that are 90-plus days overdue.
The decline in defaults is good news for auto lenders and consumers. Analysts are keeping an eye on auto finance, to see whether consumers can continue to keep up with rising sticker prices and rising interest rates.
So far, a common strategy is for consumers to take out longer-term loans, such as 72 months or even 84 months. According to Experian Automotive, the average new-vehicle loan term was 68.8 months in the second quarter of 2018, the latest quarter for which detailed data was publicly available. That was flat compared with a year earlier.
Meanwhile, interest rates are slowly rising, which makes it harder to keep monthly payments affordable. The Federal Reserve has hiked rates six times since 2016. The latest increase was Sept. 26, increasing the federal funds rate to a range of 2 percent to 2.25 percent.
The average new-vehicle loan payment hit a record $525 in the second quarter, up 4 percent from a year earlier, Experian Automotive reported.
The S&P/Experian Consumer Credit Default Indices report also tracks other forms of consumer credit, including credit cards and mortgages.
 
 

NADA: Affordability must guide path to improved fuel economy

November 2, 2018

By Peter Welch, NADA President & CEO
 
The year 2018 has been another one of shattering records in the auto industry. Unfortunately, many of these records are not the kind anyone wants to see broken.
The average monthly payment for a new vehicle hit an all-time high in March, only to reach another all-time high three months later. According to Experian, as of June the average monthly new-car payment stood at $525, which is a $20 year-over-year increase.
Ever-rising monthly payments are the number-one concern for car buyers today. But it’s not just monthly payments that are breaking records. The average loan amount for a new-vehicle purchase also reached new highs in 2018 and is now nearly $31,000.
Down payments also are at record levels. In December 2017 the average new-vehicle down payment reached an all-time high of $4,056, an increase of 5.9 percent from the end of 2016, according to Edmunds.
Clearly, Americans are doing everything they can — beyond simply borrowing more — to try to keep pace with the rising cost of new vehicles. And these rising prices are driving folks into used vehicles.
During the Great Recession in 2009, franchised dealers sold 1.09 new vehicles for every 1 used vehicle they sold. By 2015, at the peak of our recent boom cycle, the ratio had risen to 1.35 new vehicles for every used vehicle sold.
Today, that ratio is back down to 1.18 new-to-used, which means that even with the economy humming, low unemployment, increasing wages and steady consumer confidence, the ratio of new-to-used vehicles sold is approaching levels not seen since the Great Recession.
The trend toward used-vehicle purchases should be setting off some alarm bells. Not in Detroit or in the executive offices of auto companies around the globe; they have been anticipating this.
The alarms should be going off in Washington, D.C., especially in the offices of the NHTSA and the EPA. Because only through the sale of new vehicles can any of our fuel economy or vehicle emissions public policy goals actually be achieved.
 
Losing sales means stalling fuel economy progress
For many years during the debate over fuel economy and emissions mandates, regulators failed to recognize that new-vehicle customer decision-making is not just critical, but ultimately solely responsible for the real-world success of these mandates.
Why? While federal fuel economy (CAFE) and vehicle emissions (GHG) mandates force the OEMs to make and deliver more efficient light-duty vehicles to dealers, the law does not mandate the sale of those vehicles.
And retail purchasers have other options other than buying new. They can elect to drive their existing vehicles longer, or they can turn to the used-vehicle market. The biggest factor that drives that choice for the vast majority of Americans is affordability.
 
The NADA’s support for fuel economy and emissions regulations has always been contingent on policymakers understanding and embracing this unavoidable reality.
 
We have always said that it would be wrong — and by definition counterproductive — for new mandates to drive vehicle costs beyond the financial reach of working men and women.
 
But we have consistently supported flexible standards that reinforce natural customer preferences for newer vehicles over used vehicles and that don’t price customers out of the new-vehicle market. The reason is simple: Regulatory standards that embrace marketplace realities will accelerate, not inhibit, fleet turnover.
 
At the NADA, we always stress the importance of viewing public policy through the lens of consumer affordability. That’s why we’ve said that the goal isn’t just the highest fuel economy and emissions standards, but rather the highest standards the industry can achieve while keeping new vehicles affordable.
 
If we lose affordability, we will lose sales. And if we lose sales, all we do is keep people in older, less safe and less fuel-efficient cars and trucks longer.
 
We see this happening today, as the new-to-used ratio continues to tick down. As long as that continues, we’ll be failing to advance our shared goal of maximizing the number of new, fuel-efficient vehicles that we get on the road every year.
 
The right fuel economy path encourages fleet turnover
 
To that end, we have been encouraged by the work done by the NHTSA and the EPA under the Trump administration.
 
When the NHTSA and the EPA jointly issued standards in 2012, they were trying to predict market conditions some 13 years in advance, based on models, data and assumptions that pre-dated 2012. The new rule that NHTSA and EPA jointly proposed in August reflects a thoughtful and well supported analysis of the marketplace and projections of what the mix of vehicles will look like between now and 2026.
 
The agencies also correctly recognized that the world has changed quite a bit since 2012. Our expanded domestic oil and gas production has contributed to fuel prices well below what the 2012 rule predicted. And the light-duty fleet mix has changed significantly, with light-truck sales far exceeding passenger vehicle sales now and for the foreseeable future.
 
To truly be successful, the standards set by the new NHTSA-EPA rule must consider the market realities of the showroom, must enhance — and certainly not inhibit — fleet turnover, and must support the light-duty vehicle industry that is so critical to our economy.
 
Consumer affordability is king. And if the government fails to take into account the needs or financial constraints of consumers, we all lose.
 
 

FTC shares the basics of cybersecurity defenses for small businesses

November 2, 2018

Small business owners know that cyber criminals will steal data any place they can find it, whether it’s from a global retailing giant or a Main Street store. That’s why the Federal Trade Commission offers just-the-facts security advice tailored to the needs of dealerships and other small businesses.
 
At ftc.gov/cybersecurity, the FTC boils it down to a dozen need-to-know topics for small businesses. First up: Cybersecurity Basics, which sets the stage for steps companies should take.
Cybersecurity Basics offers practical tips on protecting a business’s files and devices, securing wireless networks, and making smart security "business as usual" at the business. Among the topics reviewed on the FTC factsheet and video:
 
• Why apps, web browsers, and operating systems should be set up to update automatically
• What three key steps can help secure the company’s router?
• What is multi-factor authentication and why should it matter to a business?
• How planning for the "what ifs" may help keep a business running even if a data breach is experienced
 
Another key component of Cybersecurity Basics is the importance of training company staff. The FTC’s new materials — which the Small Business Administration, National Institute of Standards and Technology (NIST), and the Department of Homeland Security also are promoting — are purpose-built for in-house training or a series of staff meetings. The video can introduce employees to the importance of cybersecurity.
 
 

New-car dealership employment, wages continue to rise: NADA

November 2, 2018

Through the first half of 2018, the nation’s 16,794 franchised new-car dealerships employed more than 1.1 million people, up 0.8 percent compared to same period a year ago, according to a new report released last month by the National Automobile Dealers Association.
"In addition to the direct employment provided by dealerships, more than 1 million other jobs in local communities are dependent on dealerships," said Patrick Manzi, NADA senior economist.
"NADA Data 2018: Midyear Report," a semiannual financial profile of new-car dealerships (selling domestic, import, luxury and mass-market brands), includes an analysis of dealership departments as well as retail-auto industry milestones through the first half of 2018.
In 2017, the annual payroll at new-car dealerships was $65.3 billion, up 2.2 percent from 2016, according to the most recent data available from the Bureau of Labor Statistics.
"For the past several years, dealership employees have seen steady increases in their incomes as well as in their total compensation," Manzi added. "Dealership jobs offer significantly higher compensation than other retail sectors, and dealerships continue to offer one of the highest average salaries of all industries."
The average annual earnings for employees at new-car dealerships was $71,916 a year in 2017, up from $69,784 in 2016, a 3.1 percent increase.
 
 

Keyless start, turbocharging top list of new cars' most popular features

November 2, 2018

The only thing that is constant, Greek philosopher Heraclitus once said, is change. Automakers follow that mantra by continually making changes in vehicles.
The changes can be technological breakthroughs, such as the automatic emergency braking systems that are increasingly becoming standard on new cars. Some changes are mandated, such as the federal requirement that all vehicles have backup cameras, which took effect in May.
At times, the shifts reflect consumer electronic trends. Cassette players in cars gave way to in-dash CD systems, which started disappearing from cars when Bluetooth streaming music arrived.
Many of these feature swaps don’t get a lot of fanfare, and some consumers might not always realize what’s come and gone until they shop for a new car. Here’s an overview.
IN: Keyless start
This feature is often paired with a keyless access system that allows entry into the car without pushing any buttons on the key fob. Early on, some owners forgot to shut off their cars in attached garages, leading to more than 24 cases of carbon monoxide poisoning since 2006, according to the New York Times. Newer systems do a better job of alerting the driver if the key moves too far away from the car while the engine is still on.
OUT: Keyed ignition
In 2008, keyed ignition systems were standard in 89 percent of new cars. Now, they’re in just 38 percent.
 
IN: Stop-start technology
This system started in hybrid cars and is designed to shut off the engine when the driver comes to a stop, saving fuel and reducing emissions. The engine starts itself again once the foot is off the brake.
OUT: Engine idle
In 2008, just 3 percent of new vehicles had stop-start as a standard feature. For the 2018 model year, it’s up to 40 percent.
IN: Turbocharged engines
In 2018, they are standard on 45 percent of vehicles. 
OUT: Naturally aspirated engines
Even trucks, once associated with large, non-turbocharged V-6 or V-8 engines, are turning toward smaller turbo V-6 and four-cylinder engines.
 
IN: Xenon and LED headlights
It’s quite a light show in cars today, with these newcomers fighting for dominance. Xenon lights are brighter and last longer than traditional halogen bulbs. LED lights do even better in brightness and longevity than Xenons. The real selling point for carmakers is that LED lights consume less power and can be configured in more unique shapes.
In 2008, 24 percent of vehicles came standard with xenon or LED headlights, according to Edmunds data. It’s up to 51 percent for the 2018 model year.
OUT: Halogen bulbs
They were dominant for decades, but use of halogen headlights has dropped by 27 percentage points over the past 10 years.
 
IN: Tire inflator kits
In 2009, these kits were standard on just 5 percent of vehicles. They are standard on 23 percent of 2018 models. The kits save vehicle weight and allow for more usable trunk space.
 
OUT: Spare tires
Run-flat tires are another non-spare solution.
IN: Digital instrument panels
Users can customize digital instrument clusters and carmakers can configure them to display more information. 
OUT: Analog gauges
They take up too much space for their single-purpose uses.
 
IN: The electronic parking brake
A button push applies the parking brake
 
OUT: The manual parking brake
Say goodbye to the hand lever or the foot pedal. Their absence gives carmakers more room in the vehicle console or footwell.
 
 

Americans remain highly skeptical of self-driving vehicles: J.D. Power

November 2, 2018

A large percentage of Americans (42 percent) said recently that they would not ride in a fully automated (self-driving) vehicle. About one in six (15 percent) said they don’t think that a fully automated vehicle will ever be built.
 
Those are the key takeaways from a J.D. Power survey released in October at the Future of Auto Summit at the University of Michigan Transportation Research Institute. The "pulse" survey responses were gathered from 1,000 Americans on a survey containing just 12 questions.
Looking a bit deeper about Americans’ belief in the technology, 18 percent of respondents said that a fully automated vehicle would be on the market in two years or less. One-third believe that such a vehicle will be for sale in two to five years, while 20 percent think development will take six to 10 years. Another 13 percent said it would take more than 10 years, and, as noted, 15 percent don’t think such a vehicle will ever be available.
When asked what level of safety would be required before they would ride in a self-driving vehicle, 45 percent said the vehicle would have to be 100 percent safe with a 0 percent error rate, and 38 percent said they wouldn’t ride in one regardless of the safety rating. A mere 2 percent said they’d ride in the vehicle without any safety testing.
Most respondents (40 percent) said there was no organization they would trust to conduct safety testing on self-driving cars. The Insurance Institute for Highway Safety would be trusted by 29 percent of respondents, while 12 percent would trust the manufacturers, and just 9 percent would trust the government.
There’s a reason behind this skepticism. More than half (54 percent) of respondents said automakers are interested in self-driving vehicles in order to sell more cars. Among those less skeptical of automakers’ motives, nearly as many (45 percent) said manufacturers were interested in self-driving cars to promote innovation.
Tech companies are viewed as wanting mostly to sell more technology (64 percent), while only 23 percent of respondents said that tech firms were interested in increasing auto safety. More than half (59 percent) said insurance companies are interested in self-driving cars so that they can sell more insurance.
As for the government? Nearly half (48 percent) said the government was interested in order to increase transportation revenues.
 
While vehicle safety appears to be the main consideration among those surveyed, they also think that the automakers, tech companies, insurance companies and even the federal government are working on self-driving cars largely to make more money. That’s not a good look, and every crash reported for a test self-driving vehicle gets so much attention that it probably reinforces the view that all these organizations are just in it for the money and don’t care about consumers. The optics, as they say, need to be improved.
 
J.D. Power noted that consumer sentiment regarding self-driving vehicles is inversely correlated with age. That is, the older someone is, the less likely she would ever to want to ride in a fully automated vehicle, and would wait even longer to take her first ride in one.