The first few months of 2019 were not looking good for the national auto industry, with new vehicle sales dipping below last year’s numbers, drawing concern from industry analysts who predict the market, at best, will be stagnant this year.
Auto dealers in Louisiana, meanwhile, also saw a slow start to 2019 but sales seem to be picking up with the arrival of tax refund checks, fading fears of interest rate hikes, and the arrival of graduation season as well as model year-end discounts. In fact, Louisiana’s new vehicle sales in April trended slightly higher than those during the same month last year.
But why is it that Louisiana’s auto industry seems to be gearing up for a better-than-average year while the rest of the country is concerned about slowing sales?
It has to do with something called the three-year buying cycle and a specific event that interrupted that cycle—as well as much of south Louisiana—three years ago: the August 2016 flood.
For new cars, the average trading cycle is about 36 to 39 months, or just over three years, according to local dealership owners. The 2016 flood threw off Louisiana’s buying cycle, as owners whose vehicles flooded were forced to buy new cars in one large wave.
The three-year anniversary of the flood, however, approaches this summer, meaning—in theory at least—the new buying cycle is about to kick off.
“The flood flipped the market upside down in 2016,” says Eric Lane, president of Gerry Lane Enterprises in Baton Rouge. “While the rest of country had good years the last two years, we were way down. We’ve seen exactly the opposite as rest of the nation. In 2019, we’re beginning to see the market start recovering now.”
And not only did the flood disrupt the local buying cycle, it also wiped out a large chunk of inventory at dealerships in the Baton Rouge area.
“A lot of cars were lost in the flood,” says All Star Automotive Group President and CEO Matt McKay. “When you think about that many cars out of the market at once, it changed the flow.”
The numbers tell a similar story. In 2016, annual new car sales in Louisiana dropped 8% to $12.8 billion, down from $13.9 billion in 2015, according to the National Automobile Dealers Association. Sales declined further in 2017 to $12.2 billion. But the market began climbing back up in 2018, with annual new car sales rising to $13.2 billion.
As the buying cycle gets back on track in Louisiana, both McKay and Lane are optimistic about 2019, expecting sales to be up from the year prior. Others in the local industry take a more measured, but still optimistic approach, predicting 2019 sales to be on par with last year.
New buying trends are also shaking up the auto industry nationally and in Louisiana. Consumer preferences continue to shift from sedans to larger vehicles, such as crossovers and SUVs, a trend which has long been noted in Louisiana likely before it impacted to national auto market.
Used cars have also become increasingly popular among consumers who are looking for more affordable options that still have important tech and safety features. In recent years, manufacturers began equipping nearly all vehicles with these features as safety continues to be a top concern among buyers. And today’s used vehicles now often have these protections at a more affordable price.
So while some dealerships in Louisiana may be seeing a decline in new car sales, their used car business, on the other hand, has been up, says Will Green, president of the Louisiana Automobile Dealers Association.
“It makes sense when you consider the certified options you can get on most used cars through a new car dealer and you have some great luxury options coming off lease that are affordable and fit with a customers budget better,” Green says. “So, if you can get a great car with all the safety and technology features and that still has the manufacturer’s warranty, it’s a great option for a lot of customers.”
Team Automotive Group in Baton Rouge has seen their used car business increase so far this year, while new car sales have been somewhat flat, says general manager Preston Q=Petersen. He attributes the stagnation among new-car buyers to interest rates, which went up four times in 2018 and were expected to continue rising this year.
But now that the Federal Reserve has called off new rate increases in 2019, and as the Louisiana’s buying cycle returns to normal, consumers could be ready to buy new again.
Local dealerships also seem to be ahead of the game when it comes to the consumer shift toward larger vehicles. Trucks and SUVs have been popular for years in rural southern states like Louisiana, meaning its auto market may be a bit ahead of the game in that respect.
“There’s a big time shift to crossovers and trucks,” Lane says, “But we’ve been seeing that for years. It’s nothing new.”
But that doesn’t mean sedans and smaller vehicles are going away. In fact, as more manufacturers—such as GM and Ford—move out of the small-car market, that means less competition for the dealerships that still sell sedans, such as Team Automotive Group, which owns Honda and Toyota dealerships.
“Manufacturers have found the midsize SUV market very popular right now, but for Toyota and Honda—since GM and Ford announced they’re getting out of the sedan business—we’re kind of the last of the Mohicans,” Petersen says. “So we have not seen a big fall off like we expected. But in general, midsize is the hot, go-to business now.”