This Week in Car Buying: What's in store for 2015
As the year draws to a close, now is a time to warm up the crystal ball and see what's in store for car buyers over the next 12 months. While all the Holiday Sales Events will be packing up tents sometime around Jan. 5-6, there's likely to be another round of new incentives waiting in the wings. The highly competitive nature of the market in which no single maker dominates means that rebates, zero or low-interest rate loans and lease deals are the new normal.
Despite this competitiveness, the addition of attractive features and lower gas prices means that the average vehicle transaction price is likely to continue increasing as buyers leverage incentives to upgrade their purchases. Two credit bureaus, TransUnion and Equifax, expect average loan balances and lease payments to rise throughout 2015. TransUnion estimates the auto debt per customer in the 4th quarter will hit $17,480 -- the 19th consecutive quarter of growth -- and that at the end of 2015, that figure will reach $18,244, an increase of 4 percent. The company also sees more growth in leasing, expecting it to account for 29 percent of all transactions, up from 27 percent a year earlier.
Longer loans in store
Last October, Chrysler Financial quietly launched 84-month loans, which underscores the trend towards longer contract periods in order to keep monthly payments in check. Dennis Carlson, deputy chief economist for Equifax told Automotive News that these longer terms are "a reflection of the cost of cars going up and also more generous lending." However, they don't necessarily reflect higher credit risks on the part of buyers. Equifax reports that in November there was actually a decrease in 60-day delinquencies from 1.15 percent a year earlier to 1.04 percent. Meanwhile, TransUnion estimates its 60-day delinquencies at 1.19 percent for the 4th quarter and sees only modest growth to 1.27 percent a year from now.
The Internet's the thing
Even as Tesla's Elon Musk continues on his quest to circumvent the traditional dealer franchise system in order to sell cars factory-direct, a much quieter revolution in retailing is going on involving large dealer groups like AutoNation and Sonic as well as forward-looking manufacturers like Volvo. And this revolution involves greater use of the Internet not only for shopping but also expediting the vehicle transaction saving the customer both time and money.
While third party sites like KBB will continue to be a valuable source of comparison information including pricing, dealers like AutoNation are building their own sites in order to create a one-stop shopping experience across the group's various franchises. Scheduled to roll out this month in South Florida, the so-called digital storefront will allow customers to reserve a car using their credit cards and do a large portion of the purchase process online. Website visitors using the new SmartChoice Express service will be able to shop AutoNation's 70,000-car new and used inventory and receive pricing and a certificate guaranteeing the price of a specific vehicle.
AutoNation is looking to roll this program out nationally to its 237 locations and expand services to handle trade-ins, financing quotes, schedule service, track vehicle repairs and pay bills.
Sonic Automotive, the nation's 4th largest auto retailer, is also rolling out a new approach to selling cars under the One Sonic-One Experience banner. This includes a new standardized process that incorporates no-haggle one-price selling involving just one iPad-equipped associate taking care of the customer through the entire transaction. The goal is to have a seamless experience that will facilitate a complete vehicle purchase in 45 minutes or less.
The chain, with its headquarters in Charlotte, N.C., has more than 100 stores around the country. In rolling out the program nationally, Sonic plans to stress the ease of its process, which will include nearly paperless transactions, mobile credit card swiping and in a move patterned after Apple, the establishment of "imagine bars" in its stores where customers can research their purchase and configure cars using an iPad and a giant screen. Like AutoNation, Sonic also plans to roll out a new web portal where customers can shop inventory, make appointments and expedite a transaction.
Volvo also is looking to use the web to sell cars; although unlike Tesla, its franchised dealers will remain a part of the process. Like AutoNation and Sonic, the Swedish automaker plans to use Apple as a guide. In addition to establishing user-friendly practices similar to the electronics giant aimed at making the car-buying process more transparent and efficient, Volvo plans to create an annual event that will showcase its products. Another change will see it limit participation in annual auto shows to just one per region: Geneva in Europe, Detroit in North America and Beijing/Shanghai in China. If both the Volvo and dealer group initiatives are any indication, car buying in the next year will become more web-based and streamlined taking the experience to the next level.
Volkswagen jumps into the online game
Volkswagen is looking to use online ordering to jumpstart sales of its 2015 VW Golf R performance hatchback. Customers will be given the opportunity to pre-order one of the first 500 available 2015 Golf R models, the most powerful production Golf ever offered in the U.S. This pre-order system goes live on January 8th and customers can secure their place in line by paying a $500 reservation fee.
These first 500 Golf R models will be identical: the topline Golf R with DCC & Nav and the six-speed DSG dual-clutch automatic transmission. All the cars will be painted in Lapiz Blue Metallic and feature the 292 horsepower 2.0-liter engine; 19-inch "Cadiz" aluminum-alloy wheels and summer performance tires; 4Motion all-wheel drive; Bi-Xenon headlights with LED Daytime Running Lights; adaptive shocks; Park Distance Control; a navigation system; and the Fender sound system. The starting MSRP is $39,090, plus $820 destination.
The next big things
Now that we know how we will be doing things next year, what will be the hot new products that will be generating the most excitement throughout 2015? It will come down to three things: trucks, small crossovers and luxury.
As gas prices continue to drop, it will fuel renewed interest in trucks and the factories are geared up to offer a wide range of new products in a segment that hasn't seen much change until recently. Of course, the big news is the aluminum-bodied 2015 Ford F-150. But this perennial best-seller faces stiff competition from the Ram, Chevy Silverado, GMC Sierra and Toyota Tundra, all of which have had either major revamps or significant refreshes within the last two years. Come January, Nissan will be showing its all-new Titan, which will also shake things up thanks to the availability of an all-new Cummins turbodiesel V8. In the mid-size ranks, the newly introduced Chevrolet Colorado and GMC Canyon will face-off against a redesigned Toyota Tacoma. Can a redesigned Nissan Frontier or a resurrected Ford Ranger be in the cards? Stay tuned.
Subcompact crossovers bloom
With the introduction of the Chevrolet Trax and impending launches of the Honda HR-V, Jeep Renegade, Fiat 500X and Mazda CX-3, the subcompact crossover SUV segment will be coming into its own during 2015. These attractive, useful and relatively inexpensive vehicles will not only find a ready audience among first-time buyers, including the much sought-after Millennials, but also give the category a shot in the arm for existing entries like the Buick Encore, Nissan Juke and Subaru XV.
Lap of luxury
Luxury car sales are hot and are bound to get even hotter in 2015 with major launches at both ends of the spectrum, from the all-new Jaguar XE sedan up through the three-pointed star's Mercedes-Maybach. Tracking the overall industry trend towards more crossover SUVs, looking for a number of new entries especially in the so-called 4-door coupes, like the Mercedes GLE and more traditionally styled models such as the Lincoln MKX, Audi Q7 and Land Rover Discovery. All told, 2015 could be a banner year for the auto industry and may return to sales levels not seen for nearly a decade.