Gas Prices: One More Issue Car Dealers Don’t Need

May 2, 2011

April car sales figures will be released later this week. Until then, I thought I would check with friends in the industry to see how things were doing locally.

“Sales of smaller vehicles in all categories is the new normal,” said one friend who works for a major car dealer. We were talking about the tough “new car” market that dealers are facing.

My friend went onto say, “Gas prices are hitting us hard. Smaller, fuel-efficient vehicles are selling like hotcakes, along with anything that says 'hybrid' on it.”

A local Honda dealer told me that they have been sold out of Civic hybrids for some time. Toyota’s Prius continues to be in huge demand, both new and pre-owned. Pickup trucks and larger SUVs are easy to get at virtually any dealership because of reduced demand. Fewer people are willing to buy larger vehicles—trucks or SUVs—because it’s so expensive to fill-up the tank. $4 a gallon gas is having a big effect on the market.

Other issues

Friends in the retail car business tell me reduced manufacturer incentives also played a role in fewer sales for them in April. It seems incentives were bigger in the first quarter.

“We’re glad for what we have, but not having the larger incentives we started the year with has reduced the number of cars we’ve been able to get out this month,” a friend at an import dealership told me.

Japanese-brand dealers are just beginning to experience reduced sales because inventories of new vehicles are not as high as normal following the March 11 earthquake and tsunami in Japan. Sources say their inventories will continue to be affected—getting worse through the third quarter of this year.

Some domestic-brand dealers have had color options limited following the Japanese earthquake. Supplies of some paint products are limiting the availability of a few colors, though sales don’t seem to be affected so far.

If there’s a bright spot in all this, it’s vehicle financing options that are available to consumers. The tight lending restrictions that choked dealer sales a few years ago are easing. Credit is more readily available, and that has a direct bearing on sales. Also, more manufacturers are getting back into leasing, which provides an important option to that segment of the car buying public.

However, despite other issues, it’s $4-plus gas that’s having such a big impact on vehicle sales. It’s an issue that car dealers wish that they, along with their customers, didn’t have to deal with. Yet, reality is a stern mistress, and it will continue to be interesting to watch the market shift in response to gas prices that are refusing to come down.

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