Cliff Banks - The Banks Report

AutoNation CEO Issues Dose of Reality to Auto Industry

January 16, 2016 — For the auto analysts and executives who are projecting 18 million or more in vehicle sales in 2016, take heed. The yellow flags are out, says Mike Jackson, chairman and CEO of AutoNation, the nation’s top dealer group.

He followed up on his strong warning last week on CNBC telling attendees today at the Automotive News World Congress in Detroit that the industry has transitioned from a growth phase from the last five or six years to an era in which sales are plateauing. His comments this afternoon — as did last his warning from last week — sent automotive retail stocks into decline today.

The warning signs include heavy incentives in the fourth quarter along with rising inventory levels which jumped as high as 25%, and as much as 50% for premium luxury brands.

The challenge is that the industry does well managing periods of growth and decline. But it’s “exponentially” more difficult to manage periods of plateau, says Jackson. Nevertheless, he says he’s hopeful — not confident — that the industry is more sophisticated today and has learned its lessons from the times the industry has pushed too hard to drive sales.

The fact is, if the industry stays in the 17.5 million neighborhood, the industry will still be healthy. The question is how the industry handles the plateau.

Jackson’s comments run counter to what several analysts are projecting will be another record year with sales exceeding 18 million units. Vehicle scrappage rates are still at a level in which sales historically increase along with easy and inexpensive access to financing and a record number of lease returns should keep sales growing, they argue.

But other analysts see a leveling off of sales — or even, a slight contraction — is possible in 2016. Alec Gutierrez, senior market analyst of Automotive Insights for Kelley Blue Book, projects 2016 sales to come in between 17.5 million and 18 million units, but would not be surprised to see numbers fall back to the 17 million level — which is still healthy, he says.

Meanwhile, Tom Webb, chief economist for Manheim (a Cox Automotive company) began a presentation this week in Detroit saying there is “an unhealthy disregard for the downside risks,” primarily some of the outside dynamics such as the Chinese stock market or events in the Middle East.

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