Business View Magazine - September 2015

124 Business View - September 2015 Business View - September 2015 125 vides a guide for how dealers and car manufacturers can work together to improve business performance and increase customer satisfaction.” The study, conducted by McKinsey & Company in co- operation with NADA, included surveys of more than 750 new-car dealers, analysis of more than 2,000 dealer financial metrics, as well as consumer research conducted by McKinsey & Company last year. Buffett: The Dealer System Works Speaking about his recent entry into the auto-retailing market, billionaire investor Warren Buffett said that consumers, manufacturers and auto dealers all ben- efit from the nation’s franchised dealer network. “The dealer system works well for the manufacturer. It works well for the dealer, and it works well for the con- sumer. It’s been around now for a very long time,” said Buffett, chairman and CEO of Berkshire Hathaway, at the NADA/J.D. Power Automotive Forum in New York. Earlier this year, Berkshire Hathaway acquired the Van Tuyl Group, the nation’s fifth largest private chain of car dealerships. “Usually when a distribution system becomes that firmly established, there’s a reason for it, and I just don’t see that changing,” Buffett said. Late-Model Used Vehicle Supply to Reach Pre-Recession Levels in 2017 Jonathan Banks, executive analyst for NADA Used Car Guide, presented an analysis and forecast of the used vehicle market in the U.S., noting the used vehicle sup- ply is swelling and should reach pre-recession levels by 2017. Banks said, “The used car market has enjoyed high demand and short supply after the recession causing used car prices to reach all-time highs. As the automo- tive market continues its rapid recovery, fundamentals in the automotive market will inevitably drive used car prices down. The question everybody’s asking relates to how much prices will drop and when.” For 2015, NADA Used Car Guide’s used vehicle price outlook accounts for several factors resulting from changes in the economy and financial sectors. Positive factors affecting used vehicle price outlook: Strong economic growth New Products Healthy employment gains Higher home prices Lower gasoline prices Negative factors affecting used vehicle price out- look: Higher used vehicle supply Increased new market pressure (i.e., flat new vehicle prices or higher incentives) Less favorable credit conditions “A burgeoning off-lease supply of used vehicles will drive late-model [5 years old or newer] volume up 8 percent this year. While late-model supply will reach pre-recession levels in 2017, overall supply won’t reach this point until a few years later. Off-lease supply will be dominated by compact cars and utilities, along with mid-size cars and utilities, which is a pre-reces- sion trend reversal,” Banks said. According to NADA Used Car Guide analysis, the con- sequence of declining used prices coupled with recent finance trends creates risk for consumers having nega- tive equity in their vehicles. This may result in residual losses as the high volume of lease returns flow back into the market now and over the next three years. Banks presented his remarks a day before the NADA and J.D. Power Automotive Forum hosted by the New York International Auto Show. automotive automotive