How Long Will The Ride Last?

Auto sales surge this year, but dealers are cautiously optimistic

November, 2002

As a man who’s sold new cars for 28 years, Nick Cutter, president of Cutter Management Co., has seen his share of peaks and valleys in an industry notorious for extremes on both ends. In late September, at the time this story was written, sales in the first eight months of 2002 had been “up substantially” for Hawaii auto dealers.

Cutter Management Co., parent of Cutter Ford/Isuzu, Cutter Dodge, Cutter Chevrolet and other Hawaii dealerships, earned gross annual sales of $470 million in 2001, according to theHawaii Business Top 250 list (August 2002 issue). The company ranked No. 15 on the list. “There truly has never been a better time to buy a new car or truck,” Cutter says.

In August, Mainland automobile sales jumped 13 percent, to their highest levels of 2002. That trend was echoed in Hawaii, where new auto registrations for the first half of the year rose by 9.1 percent over the same period for the prior year.

Generous manufacturers’ rebates and aggressive 0 percent financing programs have drawn consumers into showrooms, Cutter says. “Throughout the late 1990s and into early 2001, sales were substantially down from the best years in the early 1990s,” he adds. “What we’re seeing now is pent-up demand. People have had their cars for a while, and they’re running out of warranty.”

Sales were brisk even at dealerships that didn’t hawk sweet financing plans or fat rebates. “Honda chooses to offer 3.99 percent financing on all models for 60 months,” says Dan Keppel, general manager at Pflueger Honda, whose 2001 gross annual sales were $92.8 million, a 31.8 percent jump over the previous year’s sales. Though deals like these are offered for narrow windows of time – this one lasted from Oct. 4 to 6 – Honda remained the third best-selling retail brand in Hawaii.

“This has been a very good year,” says Curtis Lee, senior executive manager of Servco Pacific, whose gross sales for 2001 were $428 million. Approximately 20.9 percent of all vehicles sold in Hawaii in the second quarter of 2002 were Toyota products, according to the Hawaii Automobile Dealers Association. Despite the absence of zero percent financing and rebate programs, Servco Toyota was having no trouble moving cars. “Actually, one of our more significant problems is to obtain sufficient inventory,” Lee says. “There’s a worldwide shortage of Corollas. Recently, we’ve been to the point where we have only a day’s or two’s supply between shipments.”

Cutter had similar concerns. “Right now, inventories of 2002 models are about 70 percent of our total inventory, because the 2003 models are just starting to come in. We’re at the lowest level of new car and truck inventory that we’ve had in many years. Frankly, we’ll be out of 2002 models for some lines at the end of October.”

As they waited for the 2003 cars, Hawaii dealers were acutely aware that things could change at any moment. “There are some clouds on the horizon,” Lee says, referring to the possibility of war with Iraq, and as of this writing, to the looming trouble on the West Coast.

On Sept. 29, the Pacific Maritime Association, which represents shipping companies and terminal operators, locked out 10,500 longshoremen at 29 West Coast ports, claiming that they’d implemented a work slowdown after their expired contract wasn’t extended.

Three days later, an auto manufacturing plant in Fremont, Calif., suspended production. Like many others in the U.S., this plant relies on “just-in-time” parts from Asia. The parts were sitting on a freighter in a California port, waiting to be unloaded.

With limited inventories, shortages of many models, and deliveries of cars and parts at a standstill, there may be rough roads ahead for island auto dealers. “We have a 45-day supply of cars, so a short lockout won’t be a problem,” says Keppel. “But if it goes two or three months, it could be difficult.”

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