Local auto sales gain traction
In Puerto Rico owning an automobile isn’t a luxury; it is a necessity. Without a reliable islandwide mass-transportation system, approximately 88% of the island’s working population depends on their personal vehicles to get to work.
It is no wonder the island boasts one of the world’s highest concentrations of vehicles and roads per square mile. Puerto Rico residents simply have to drive.
While local motorists might not mind the twists and turns of Puerto Rico’s roadways, island auto dealers are thrilled to find real traction after seeing sales skid for four straight years.
From the local auto industry’s record-setting 2005, when 140,000 new units were sold, auto sales slid steadily for the next four years, with just 76,414 new units delivered in 2009, a 45.7% drop from 2005 and down 16% from 2008.
In fact, 2009 was the worst on record and the second-consecutive year below the 100,000-unit mark since 1995, when local auto distributors voluntarily began to share new-vehicle sales data, compiled and distributed every month by Plaza Motors Corp.
However, the final sales numbers for 2009 don’t tell the whole story of a rollercoaster year that saw sales fall steadily until finally picking up in August. That upward momentum continued through the second half of 2009 and has continued into 2010 with no signs of slowing down.
Auto sales get boost from CARS
Several factors are credited with triggering the sales upswing in 2010, including the CARS program, customers needing to replace their aging personal and fleet vehicles, and a more concerted effort by distributors, dealers, auto finance and insurance companies to provide greater incentives to buyers through special sales events or auto fairs.
While auto sales in 2009 ended down compared to 2008, new-auto sales during the second half of last year climbed 21% starting in August with the arrival in Puerto Rico of the federal Car Allowance Rebate System (CARS), better known as the cash-for-clunkers program.
“Nowadays, we are seeing greater customer traffic at our dealers, mostly thanks to the CARS program, which helped bring customers back to our points of sale,” said Carlos López-Lay, president & CEO of local Acura and Honda distributor Bella Group. “Although CARS didn’t translate into a huge increase in sales, it did increase customer traffic significantly for our dealers.”
Although most local dealers missed the first $1 billion under the CARS program due to authorization delays, they did manage to net $2.25 million in vouchers for approximately 500 new vehicles before $2 billion in extra funding was exhausted and “cash for clunkers” idled as of Aug. 25, 2009.
Since then, the local new-auto sales market has seen an upward trend that is now in its seventh month, with no signs of slowing.
Auto sales jumped 5.5% in August 2009, followed by a 10.2% drop in September and increases of 4.2% in October, 0.2% in November and 12% in December. The auto sales trend continued through 2010 with a year-to-date 17.9% jump with 70,078 new units sold as of October.
Late in 2010, sales projections for the year range between 82,000 and 90,000 new units.
Sales events help revive stalled industry
AG Group President Arturo Guzmán said special sales events are largely responsible for reviving the stalled local auto industry.
He said the secret to the success of these events is AG Group’s organization and experience combined with its proven formula of aggressive promotion and providing a venue where competing industry players and suppliers can come together to offer better deals to local car buyers.
“What we have done is take the auto sales experience to a level never before seen by providing a carnival type of atmosphere, which Puerto Rico consumers just love,” Guzmán said.
Each multiday event helps generate some 500 jobs, including suppliers, and attracts approximately 15,000 visitors, Guzmán said.
In August 2009, Ford broke the ice by holding the first of these mega-sales events in more than a decade. After Ford’s success, the industry followed with dozens of mega-sales events throughout the island, helping move over $60 million worth of new-vehicle inventory and generate more than $8 million in excise taxes.
“The beauty of these events is that dealers get great financing, quick approvals and prices we haven’t seen before. It’s basically a win-win situation for everybody—the manufacturers, dealers, banks and consumers,” said Ray Lugo, general manager of local Chrysler Group distributor Chrysler Group International Services LLC.
The local Chrysler Group chief said that as long as the industry keeps holding these events, overall sales of 90,000 units could be reached in 2010.
Sustaining the momentum
While Guzmán has more auto sales events in the pipeline for early 2011, some in the industry warn the strategy could turn cold at some point, while others don’t plan to turn to such events to lift sales.
“The large number of offsite sales has contributed to the nice sales improvement versus last year. But like all events of this nature, these will have a life of their own, so we will need to continue to monitor the effect of these in sales,” said John Bowen, Suzuki del Caribe regional manager.
Víctor Quintero, president of Hyundai de Puerto Rico, credited the auto-industry sector’s proactive stance for the sales surge of the past few months, while acknowledging that the mega-events have yielded positive results as part of that reinvigorated approach.
“These types of events are positive for consumers since they can save money because both the distributor and the dealers make financial sacrifices to provide additional incentives, which helps move inventory while spurring economic activity,” Quintero said.
Waldo Galán, managing director of Ford’s Caribbean & Central America region distributor Ford International Business Development Inc., said the auto fairs were initially intended to be annual or biannual events, not once or twice a month, as has become the case.
“The auto fairs have provided us very good results, but they are costly in terms of the costs and staffing involved in setting them up. In addition, they could be pulling ahead or advancing some sales from later in the year,” Galán said. “We also have to be careful not to affect the level of service, not only during the sale, but throughout the life of the vehicle as well.”
Bella Group’s López-Lay said the recent auto-fair events have ended up being an important factor boosting auto sales in the past year, giving local distributors reasons to be hopeful for a moderate-but-stable increase in sales in 2010.
“We continue with our growth plans for both Honda and Acura,” López-Lay said. “In the past two years, we have opened additional points of sale, such as a new Acura dealer in Ponce. We recently introduced the new Acura ZDX, the Honda Crosstour, the Honda CR-Z and the Acura TSX Wagon. These are innovative products for the local market.”
The top five automobile companies according to the CARIBBEAN BUSINESS list of Top 400 locally owned companies are: Bella International Corp. & affiliates (No. 17), $250.22 million; Garage Isla Verde Inc. (No. 50), an estimated $111.8 million; Auto Grupo 65 (No. 56), $96 million; Cabrera Inc. (No. 64), $85.69 million; and Braulio Agosto Motors Inc. (No. 87), $63.27 million.
As a group, the top 10 automobile companies in Puerto Rico amassed a total of $852.51 million in revenue in 2009.
Automobile companies accounted for 7.25% of companies on the Top 400 Locally Owned Businesses list with 29. These companies generated $1.28 billion in revenue in 2009, representing 5.3% of total Top 400 revenue.
Japanese automakers continued to dominate the local market with 4,857 total units sold in October 2010, a 10.4% increase from the same month of the previous year, and a 61.5% market share. Korean automakers Hyundai and Kia together sold 889 units in October 2010, up 37.2% from the same month in 2009 with an 11.2% market share.
Combined sales by domestic automakers Chrysler Group and Ford in October 2010 reached 1,867 units, up 38.2% from the same month in 2009, with a 23.6% overall market share.
For 2010, Ford and Chrysler Group were up 71.4% and 33.3%, respectively, as of October.