Let’s Get Going
Published January 25, 2016 - Written by John Kett
As 2016 kicks off, IAA’s John Kett provides an overview of the industry’s current state. 2015 was a challenging time for the automotive auction sector, with a strong U.S. dollar, upside down supply/demand fundamentals in the metals markets and slower-than-expected economic growth in China creating headwinds, but there’s plenty of reason to be optimistic for what 2016 has in store.
What’s in Store for 2016?
The dawn of a new year is an exciting time. Aside from the resolutions many of us set, it’s also a time for new opportunities. But while January 1 may be a significant milestone, it’s important to remember that this date has almost no impact on the economic factors driving our industry. While they are certainly influenced by seasonal trends, they continue down their inexorable path regardless of what the calendar says. With that in mind, it’s critical we account for these factors as we kick off our 2016, so I wanted to take this opportunity to provide a quick overview of our market at this moment, and the dynamics IAA is monitoring as we move into the New Year.
2015 was tough on the value of salvage vehicles, as a strong U.S. dollar, upside down supply/demand fundamentals in the metals markets, and slower-than-expected economic growth in China all contributed to the troubles.
On the supply side, falling oil prices afforded increases in average miles driven compared to years past, leading to more vehicles finding their way to the auction lanes. As more miles are driven, vehicles suffer from accidents and standard wear and tear at a higher rate.
When combined with a higher age – the average American vehicle is now 11.5 years old – we see a larger number of units reaching total loss thresholds.
New-vehicle sales in 2015 approached near-record levels, resulting in a tremendous amount of trade-in units finding their way to the auction lanes. 2016 sales forecasts currently top the levels seen last year.
On the used-vehicle front, the increasing proportion of CPO sales represents a shift in consumer supply that could have an impact on the wholesale market.
When we examine the economic factors at play in our industry – wage stagnation and subprime auto loans, in particular – we see the potential for heightened repossession activity. The recent interest rate hike and its inevitable impact on variable rate auto loans will also make itself felt in this arena.
Despite the headwinds the industry has faced over the past year, we’re seeing several positive trends occurring. A healthier U.S. economy and increased construction activity, for example, could contribute to an excellent year for specialty equipment. In fact, industry experts anticipate new construction starts could increase as much as 6% over 2016. Things aren’t quite so clear for the shipping industry, however, which faces expected fuel cost increases and a prolonged driver shortage.
Regular surveying conducted by IAA indicates the general public’s sentiment toward charitable giving remains high. In addition, the percentage of individuals intending to donate a vehicle over the next 12 months is trending up.
That’s where we stand today, and that’s what we’ll be watching as we progress into the New Year, but as anyone in the automotive industry knows, things can change in an instant. We’ll be taking a look ahead in 2016 with a host of exciting new reports and publications. The first of these – an update to our industry-first CAFE Standards Report – is set for release over the coming weeks, so keep an eye out for it.
While the economy may not care what year it may be, all of us at IAA certainly do. And on behalf of our more than 2,400 team members at our over 170 facilities across North America, I want to thank all of you for entrusting the health and wellbeing of your businesses to us. The long-term relationships we’ve built with our partners are a point of pride for IAA, and we look forward to ringing in many new years with all of you.
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