2010 has proved to be a year of modest recovery for the US auto industry. Sales have overall more consistently outperformed year ago levels while GM and Chrysler have worked diligently to get back on their feet again. But what should we expect for 2011? Compete uses its proprietary ability to track in-market consumer behavior to understand drivers and inhibitors of vehicles, brand, and market sales. Using those same tools, we crafted sales scenarios for 2011 based on likely combinations of shoppers and conversion.
History for Context
Over the past four years, the industry has experienced much turmoil. While overall market demand began to decline in 2007, the rise in gas prices in 2008, peaking above $4 per gallon in July, followed by the Q4 recession exacerbated the fall. Market demand fell to an all-time low 1.8 million shoppers in November 2008 (matched again in September 2009) and struggled to gain a footing until 2010. Even with its improvement in 2010 monthly market demand has remained below its previous highs.
Higher gas prices and 2008’s recession also sent market conversion plummeting to a new low, bottoming out at 25% in January 2009. Cash for Clunkers in the summer of 2009 gave the market a much needed conversion boost as demand continued to struggle. However, the program pulled many buyers ahead and when the program ended, conversion and sales headed south. Since then, with the exception of the typical year-end conversion spike – year-end sales events drive sales and conversion – and a spike in March 2010 due to heavy incentive spending around the Toyota recall, conversion has remained modest compared to prior years. On the other hand, we are seeing some signs of life among new vehicle shoppers as demand has remained consistently strong which has helped to drive industry sales in 2010.
Consumer Confidence and new vehicle measures of factors impacting the market. Both measures have remained depressed since falling to all-time lows in late 2008 and early 2009. Consumer Confidence has remained low in 2010 and has struggled to rebound since falling to its all-time low in February 2009. At the same time, 6 month new vehicle purchase intentions have shown some signs of life but have not had any sustained growth. Purchase intentions have remained very volatile, likely influenced by sales tactics such as incentives.
2010 sales are likely to come in between 11.0 and 12.0 million sales
So where does that leave us for 2011? Assuming manufacturers will continue to keep production and inventory under control, where do we see the industry in the coming year? Compete developed three scenarios.
Scenario 1 – The Status Quo
Assumptions: Consumer Confidence and new vehicle purchase intentions remain in the doldrums in 2011, neither increasing significantly throughout the year
• Monthly 2011 demand remains on par with 2010 levels,
averaging 2.6 million
• Market conversion remains on par with 2010 as well averaging
37% per month
• 2.6 millions shoppers x 37% conversion yields just under one
million sales per month x 12 months = 11.5 million annual sales
Scenario 2 – Modest Demand and Conversion Gains
Assumptions: Consumer Confidence begins to improve, as does purchase intent, but both remain below 4 year highs
• We see a slight increase in monthly demand ahead of 2010
levels, averaging 2.8 million shoppers per month
• Market conversion improves slightly as well, averaging 38% per
• 2.8 million shoppers x 38% conversion yields more than one
million sales per month x 12 months = 12.8 million annual sales
Scenario 3 – Stronger Demand, Improved Conversion
Assumptions: Consumer confidence and purchase intent both show steady and significant improvement in 2011
• Monthly demand improves dramatically, averaging 3 million
shoppers per month
• Market conversion improves to an average of 39% per month
• 3 million shoppers x 39% conversion yields nearly 1.2 million
sales per month x 12 months = 14 million annual sales
There’s no way of knowing just what the US auto industry will look like a year from now. However, as the economy continues to slowly recover and GM, Chrysler and Toyota get back on their feet, there is optimism heading into 2011. Will we continue to take small steps on the road to recovery or will we begin to see real industry growth? Only time will tell. However, with Compete’s ability to track market performance in a timely fashion, auto marketers are able to determine whether it’s demand or conversion that’s driving sales – the industry’s as well as their own and their competitors – and make the necessary adjustments in their marketing investments to ensure they stay on track with their goals.
Dennis Bulgarelli is a Client Services Director at Compete. At Compete Dennis is responsible for advising auto clients on trends in consumer online shopping behavior. Before Dennis joined the Compete team he did research and planning at most of the large ad agencies. Dennis hopes to one day, drive cross- country on the blue highways. Follow Dennis on Twitter @dennisbul or connect with him on LinkedIn at http://www.linkedin.com/in/dennisbulgarelli.