25th Annual Car Wars Wrap-Up

On May 8, 2016, Bank of America and Merrill Lynch published their 25th annual “Car Wars” study.  The purpose of this 47-page study is to quantify industry trends and relate them to Bank of America and Merrill Lynch investment decisions.  From my perspective, there are 3 main takeaways from the survey that will have significant impact on dealers:

• Bank of America and Merrill Lynch are projecting approximately 190 new model launches over the next 3 years (about 48 new models a year).  This accelerated replacement rate is running 26 percent higher than what we’ve seen from 1996-2015. This acceleration speaks to the level of competition in the market even though IHS (formerly Information Handling Services) shows vehicles in operation (VIO) are now at their oldest age ever (11.5 years).  With Seasonal Adjusted Annual Rate (SAAR) now running at mid-17.5MM and replacement rates increasing, dealers will continue to see increased competition from quality preowned vehicles in the market as they clear leases/trade-ins.
• The high replacement rate level will clearly favor Crossover Utility Vehicles (CUV’s) share at the expense of every other category. Thirty-two percent of the new models are projected to be CUVs over the next 3 years. (Sector growth is projected to come out of Ford & Honda. GM already has majority light truck/CUV share.)  Those dealers who are tied to OEMs with aggressive replacement rates and lower showroom age are best positioned to increase their market share over the next several years.
• Low fuel costs and continued low interest rates (a dovish Federal Reserve announced last month that they’re projecting only two rate hikes for 2016) will only add fuel to the market.  Car Wars emphasizes that accelerated product innovation and capital investment will be key components in being able to take advantage of these market conditions.

In summary, increased replacement rates and lower showroom ages offer consumers a multitude of options but at increased competition from a dealer’s standpoint.  With the mounting levels of pressure mentioned above, it becomes even more critical that dealers have a clear understanding of which marketing campaigns positively influence sales opportunities and which do not.

You can access the full report here