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2018-02-28 / Featured / Observer Business

Driving the economy: Local auto sales are strong, but idling

BY PETER GALUSZKA CONTRIBUTING WRITER


Anthony Gray, a longtime dealer representative at Haley Toyota on Hull Street Road, says business remains strong but is beginning to level off somewhat. 
ASH DANIEL Anthony Gray, a longtime dealer representative at Haley Toyota on Hull Street Road, says business remains strong but is beginning to level off somewhat. ASH DANIEL The pace was leisurely one bright winter morning at Haley Toyota of Richmond on Hull Street Road. Parked just inside the showroom was a high-end Avalon sedan hybrid, white with a brown and gray leather interior. The sticker price: $44,533.

Anthony Gray, a dealer representative, was just finishing with a customer. While sales have been strong at the sprawling dealership near state Route 288 for several years – the highest levels ever, in fact – when it comes to actual growth, “You got a flat line,” he says. Increases in year-to-year sales have stalled.

“Plateau is the right word” for the current car market both nationally and at home, says Doug Pridgen, chief executive officer of the Haley Automotive Group, which sells Toyotas, Buicks, Chevrolets and Jeeps, among other models at 11 stores, including two on Hull Street Road. Haley Automotive Group, which employs more than 700 people, is one of the biggest dealership groups in a county that has long been a hotbed for car sales, particularly along the western corridor of Midlothian Turnpike. In Chesterfield, there are more than 40 dealerships for new and used cars. Last year, according to data compiled by the Commissioner of the Revenue’s office, county car dealers brought in $986.6 million in gross receipts – $896 million in vehicle sales and another $90.5 million in service and repair work.


Anthony Gray, a salesman at Haley Toyota, says customers are shopping for new cars armed with more information and data than ever before. Anthony Gray, a salesman at Haley Toyota, says customers are shopping for new cars armed with more information and data than ever before. In most localities, auto dealerships represent the largest segment of independent, locally owned small businesses, says George Hoffer, an economics professor at the University of Richmond who specializes in transportation. Nationally, the market for new car sales has come roaring back after the most recent recession and remained healthy. The not-so-good news is that sales increases have recently flattened, and some car models, notably those in the sedan category, have started to lag.


The advances in technology, such as the sophisticated digital interfaces on the latest Camry, are rapidly improving the driving experience, Gray says. The advances in technology, such as the sophisticated digital interfaces on the latest Camry, are rapidly improving the driving experience, Gray says. The number of cars being produced and sold “is at its highest plateau in history,” Hoffer says. He notes a slight dip in sales from a record of 17.5 million “light vehicles” in 2016 to 17.2 million last year. Light vehicles broadly include most automobiles purchased for personal use, including sedans, pickup trucks, SUVs and crossovers. Locally, Chesterfield has long been a strong market for new car sales. In fiscal 2017, there were 15,814 new car titles issued in the county, according to the Virginia Department of Motor Vehicles, up from 15,201 new car titles in fiscal 2016, and 14,944 new car titles in 2015.

The trade journal Automotive News reports that conditions may be weak enough to make vehicle sales in 2018 drop further to a “still robust range” of 16.7 million to 16.9 million vehicles. The Virginia Automobile Dealers Association has not yet listed tallies for statewide sales for 2017.

“The market is definitely getting more challenging,” says Haywood “Huddy” Hyman, head of Hyman Brothers Automotive Group, which has been selling cars in the local area since 1946. “A lot of manufacturers are cutting back on production because they were building them faster than they could sell,” he says.

This isn’t to say it’s all gloom. Hyman notes that Nissan sales are up 10 percent and Subarus continue to be hot sellers. Other big sellers are Toyota’s RAV4, Camry and Corolla models, along with assorted trucks and crossovers.

What this means for drivers shopping for a new ride is that they can get better deals and deeper discounts from sticker prices. “The average incentive is a $4,000 rebate and that’s on the top side,” Hyman says. Average rebates had been $3,700, Hoffer notes.

More incentives include offering buyers more sophisticated options, such as electronic and navigational aids, Gray says. Unless it is squashed by higher interest rates, zero percent financing remains a strong motivator for buyers.

Another factor affecting sales is the fact that many cars that had leased three or so years ago are coming back on the market, which dealers say is a bit of a fluke. Hoffer says that since 2014, a third of all sales have been leases, wherein customers make down payments and agree to pay monthly lease payments without the burden of long-term debt. Nationally, about four million leases are expiring, and customers with leases aren’t likely to keep their vehicles, Hoffer notes. But many of them do not have the cash to buy new or top-end vehicles, so they end up leasing another car or buying a used one, Hoffer says. That, in turn, deflects new car purchases.

Used car sales also appear to be a drag on new car sales. CarMax, which has a dealership on Midlothian Turnpike, reported in December that its net third-quarter sales in Virginia and elsewhere during 2017 were $4.11 billion, up 11 percent, compared to the same period a year ago. For the third quarter in 2016, net sales were $3.7 billion.

Despite some uncertainty, the Chesterfield and Richmond areas boast strong economies that should mitigate drastic car sales drops. Pridgen notes that the Richmond area “has a wonderful economy” with enough diversity to keep it from becoming too dependent upon any one sector.

Hoffer says the “market is strong and will stay strong” for the remainder of 2018, which is good news for Chesterfield and Henrico, where the bulk of the region’s automotive dealers are located – particularly along western Midlothian Turnpike, Hull Street Road and West Broad Street in Henrico County.

Perhaps the biggest question in 2018 is whether inflation and interest rates will rise and slow car sales. Already, there is pressure on the Federal Reserve Board to hike rates. Increased federal budget spending and tax cuts also put pressure on higher rates, Hoffer says, all of which could undercut the popular “zero” percent financing option that new car dealers currently offer.

Another long-term challenge for the traditional car market includes shifting technology, particularly gauging the impact of self-driving and electric cars. How quickly “autonomous vehicles,” or AVs, will enter the market, and their impact on buying patterns, is unknown. Hoffer is skeptical there will be an immediate impact because of regulatory issues surrounding driverless cars.

Of course, all the new technological advances in the latest car models gives salesmen such as Haley’s Anthony Gray a powerful tool. During a recent visit, he turns giddy explaining the bells and whistles available in the latest Camry, with its motion sensors and safety features, not to mention the “multi-link rear wishbone suspension” system, which allows the car to handle curvy roads like a dream.

As more customers come through the showroom armed with data about the newest cars gleaned from internet sources, Gray says he has to know more.

“It’s about the experience and understanding what this car can do,” he says, explaining the Camry’s many features. “I’ve got to know more about my cars.” ¦

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