While its sales experienced a minor dip this year due to the lingering effects of Hurricane Harvey, the Texas automobile industry is concentrating on driving forward, with a full recovery expected by year’s end.
The cautious economic optimism Comptroller Glenn Hegar expressed as he delivered the Biennial Revenue Estimate (BRE) to the Texas Legislature in January has held true for 2019 automobile sales. As Hegar predicted, while automobile sales tax revenue through June saw a drop in reported receipts compared to the same point a year ago, receipts through July are up 0.1 percent from the same point in fiscal 2018 [Exhibit 1].
That small increase means auto sales numbers are on track to pick up by the end of 2019, says Chris Tjon, revenue analyst with the Texas Comptroller of Public Accounts.
“After Harvey hit in 2017, Texas experienced a higher than usual number of automotive sales for the next few months in our affected economic regions, as Texans replaced vehicles damaged or lost in the storm waters,” Tjon says [Exhibit 2]. “And since those were such recent purchases, we predicted it would have an effect on vehicle sales numbers for the next couple of years.”
Post-Harvey sales trends have affected Texas automotive dealers in a variety of ways.
“That so many people were forced to replace their vehicles all at once after the storm has been a contributing factor to slower sales in subsequent years,” says Jeffrey Lee Martin, executive director with the Texas Independent Automobile Dealers Association.
“As independent dealers, which means we only sell used vehicles and we don’t have a relationship with any one manufacturer, we can be a little nimbler when it comes to our inventory,” he says. “The biggest challenge for our dealers is finding the inventory. Our dealers have to travel farther to find vehicles, which increases costs due to transportation. But if the demand is there, independent dealers will find a way to get the inventory.”
But, says Martin, other influences are at work besides the hurricane.
“The last report I saw said the average age of a vehicle on the street is just over 11 years old, and that number has increased significantly in the last five to six years,” Martin says. “And yes, we believe other social trends like ridesharing and alternative transportation models have had some effect on our total vehicle sales.”
Market resilience is reflected in the association’s decision to educate its members on best practices and sales strategies to stay current with the times, such as education on technologies that can allow its members to source vehicle and parts inventory, develop marketing or deliver vehicles to customers.
“Our association’s leadership is not fearful of outside business influences that pop up — we just view that as part of an ever-changing industry,” Martin says. “We are more fearful of regulatory changes that may come with unintended consequences.”
President Bill Wolters of the Texas Automobile Dealers Association, which represents franchised Texas automobile dealerships, believes the state’s dealership sales are primarily affected by four factors.
“It goes back to affordability, the cost of the vehicle, the transaction fees and the interest rates,” Wolters says. “The slight decrease we’re seeing this year is attributable to those financial factors, rather than potential market disruptors such as ridesharing or weather events.”
The recent decision by some car manufacturers to move away from passenger car sales in the North American market and focus instead on sport utility vehicles (SUVs), trucks and crossover vehicles isn’t a concern for Texas dealerships, Wolters says.
“What you’re seeing with this market shift is where Texas has been a sales leader,” he says. “We’ve always been heavier into SUV and pickup truck sales because of the nature of our state, where we travel great distances to work and play. This shift actually plays well for our Texas dealers, as it’s a natural fit to what Texas wants and will continue to want.”
This change in manufacturing and marketing strategy might have other benefits as well. “SUVs, trucks and crossovers have higher sales values than passenger vehicles, and that, by extension, will contribute to the more than $4 billion dealerships already pay in taxes and registration fees,” Wolters says.
Read our agency’s coverage of Hurricane Harvey’s economic impact on Texas in our award-winning Feb. 2018 Fiscal Notes special edition, A Storm to Remember: Hurricane Harvey and the Texas Economy.
|July 2018||July 2019||Difference|
Source: Texas Comptroller of Public Accounts
|Fiscal Year||Sales Tax||Change Over Previous Year|
Source: Texas Comptroller of Public Accounts