Category: Economy

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Economy

Mid-Year Economic Indicators Guide 2022 Planning

The midway point for 2021 is in the rearview mirror and many dealership owners and managers are knee-deep in planning for 2022. Now is the perfect time for a quick review of the mid-year economic indicators. While new model retail sales are trending up and used vehicle prices are hitting record highs, there are some broader market trends which should be considered.

Supply chain issues impact sales forecast

According to NADA, new light-vehicle sales are expected to reach 15.5 million units for 2021, representing a 7.2 percent year-over-year increase.  Fitch Ratings expects vehicle sales to return to 2019 levels in 2022/2023. However, IHS Markit and Wards Intelligence do not expect the U.S. to see 17 million light-vehicle registrations annually until 2025. This market skepticism is fueled by supply chain issues and a persistent semiconductor shortage. General Motors, Fiat Chrysler and Ford have all felt the impact on production, and analysts believe the semiconductor chip shortage will reduce new vehicle production by 1.28 million.

While dealers have experienced the vehicle shortages first hand, one bright spot is the strong trend toward online sales which were bolstered during the 2020 shutdown. Consumers increasingly became more comfortable completing more of the vehicle purchase process online. This has allowed dealers to stay in the game even with the persistent production issues as the online sales model is perfect for a vehicle order rather than immediate delivery.

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Economy

Springtime Boosts Consumer Confidence. Dealers, Stay Cautious!

For much of the country, the sights and sounds of spring have begun. This year, those green shoots of renewal come with an extra boost of optimism. Temperatures are warming, vaccine distribution is rolling out, and COVID-19 cases are trending down across much of the country. A third round of stimulus checks and income tax returns are hitting consumer bank accounts. Other signs of economic recovery are also evident, including a February rise in total nonfarm payroll employment by 379,000, largely attributed to gains in service and hospitality jobs. The Conference Board Consumer Confidence Index for February continued its upward rally, reflecting consumer’s general optimistic outlook.

With all of these positive economic signs, the retail automotive market should be primed for a great spring. But there are two sides to the story, both hinging on inventory of new and used vehicles. With caution, dealers will need to closely monitor both sides of the equation, as well as listen closely to buyer attitudes to capitalize on the positive trends.

New vehicle inventories are facing an unusual challenge. While factories have returned to work, pandemic-related global supply chain challenges are hindering parts availability. From plastics to semiconductor chips, manufacturers are left trying to source substitute parts, or simply waiting for deliveries. Dealers who are normally looking for space to house new vehicles at this time are faced with too few units. Consumers flush with extra cash are forced to either wait for their car of choice or pre-order vehicles months in advance. A recent Wall Street Journal article characterizes the situation well, indicating the forecasted retail automotive rebound is being hamstrung by situations thousands of miles away.

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Economy Industry Trends

The November Election and Your Reinsurance

We are just a few days away from the presidential election – as well as several state, county, and city races. As a dealer principal, you are likely watching the races for their impact on your strategic planning to ensure your financial positions are secure. While we do not have a crystal ball as to the outcome of the election, we do have some data points to assist with your strategic planning.

We all know that historically a typical Democratic policy reflects higher taxes on businesses, and a typical Republican policy touts lower taxes. While it is ineffective to apply this thinking across the board, the historical perspective can be useful in planning scenarios. Perhaps more importantly, there are some specific tax policies which could be in play depending on changes in congressional power.

Democratic Control and Taxes

If the Democratic candidate wins the presidential election and Democrats take a stronger position in Congress, there is a probability that corporate taxes will increase. More specifically, congressional Democrats may seek to remove the Bush-era qualified dividend tax break, affecting Controlled Foreign Corporation (CFC) and Non-Controlled Foreign Corporation (NCFC) reinsurance positions. To understand the implications of this, let’s consider the dividend breakdown. In terms of tax policy, there are two types of dividends: unqualified and qualified.

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