Area auto sales remain stuck in low gear
Third-quarter figures for area dealers are the worst since 2011
Auto dealers continue to grapple with the effects of the oil bust, which has eaten into the earnings of the city’s largest dealership operator.
Auto dealers across the Houston region continue to grapple with the effects of the oil bust, which has eroded area vehicle sales and eaten into the earnings of the city’s largest dealership operator.
New-vehicle retail sales in the metro area have plunged more than 23 percent so far this year, and the declines showed little signs of abatement Thursday as industry giant Group 1 Automotive reported a lower third-quarter profit. It cited the energy slowdown in Texas and Oklahoma, where much of its business is concentrated.
“We’re getting closer to the bottom in Texas, but I don’t think there’s any indication we’ve hit the bottom yet,” Group 1 CEO Earl Hesterberg said.
Third-quarter sales for all car dealers in the Houston region were the lowest since 2011. In September, a traditionally strong month, retail sales in the ninecounty region totaled 19,556 vehicles, down nearly 43 percent from the same time last year, according to data from the texauto Facts Re--
port, published by Sugar Land-based InfoNation.
“It’s not a pretty picture,” said Steve McDowell, owner of InfoNation. “We’re just staying down in that low level, and that’s where I think we’ll be in the fourth quarter.”
The results proved particularly disappointing after signs of improvement in August, when sales reached the highest number since last October. Even the pickup truck market’s share, which has remained constant for three months, fell slightly in September.
Group 1, a Fortune 500 auto retailer, reported earnings of $35.4 million in the three months that ended Sept. 30, according to a news release. By comparison, the company posted earnings of $45.3 million in its record-setting third quarter last year.
The company owns and operates 161 automotive dealerships and 212 franchises in the United States, the United Kingdom and Brazil. In addition to the energy slump, uncertainty in the U.K. after its vote in June to leave the European Union also had an effect on the company’s sales, Hesterberg told analysts in an earnings call Thursday.
Still, Group 1’s U.S. operations accounted for about 80 percent of its revenue this quarter. The company reported a 5.5 percent decrease in retail new-vehicle revenue in its domestic markets, and same-store new-vehicle retail sales decreased 4.4 percent in the same areas.
The company’s stock price closed at $59.15 Thursday, down 6.2 percent.
The energy slump has eased slightly in recent weeks as crude prices rose above $50 a barrel, but Hesterberg told analysts he doesn’t foresee shortterm improvements in vehicle sales in the oil patch. He noted that the automotive industry, now feeling somewhat delayed effects of the bust, would likely rebound only after energy producers again ramp up their activities.
Virgil Skinner, chairman of the Houston Automobile Dealers Association and owner of Fort Bend Kia, said he hadn’t expected last month’s sales numbers to slide so low.
“Primarily, with the energy sector being as depressed as it is, there are a lot of people out looking for jobs,” he said. “That has had an impact, and there’s no denying that.”
Despite the market’s underperformance, the most recent sales data had some bright spots. For the first time since 2010, entry-level new vehicles showed a slight increase in market share, according to TexAuto Facts.
“I think some of that has to do with the economy,” McDowell said. “I would say that some people are deciding they’d rather buy new entry-level than a used vehicle.”
Nationally, consumer confidence has been on the rise. Last month, that index reached its highest level since August 2007, according to Conference Board data based on a Nielsen survey.
Both Skinner and Hesterberg noted the outcome of the presidential election could further boost consumer confidence at a time when dealers and manufacturers are stepping up efforts to sell off older models and make room for new ones.
“I think everybody, every car dealer, has strong incentives right now, and the inventory is there,” Skinner said.