GUIA

“Torture numbers and they’ll confess to anything”. I was introduced to this quote from Mr. Gregg Easterbrooke a news editor from a mainland newspaper, who has nothing to do with business, marketing or statistics, by a dear friend of mine who happens to be a brilliant statistical person. What does it have to do with this paper? I'd say a lot. When I was presented with the honor of producing the first article for our GUIA Web page, I stared for a long time at the subject: automobile sales during the past decade. I immediately thought to myself, what an arid theme to work with! Coming to think about it, I was making myself a similar question earlier in my career but I came to understand through my friend, that numbers have a “story” to tell you. Being formally trained in advertising and marketing, I have come to look at numbers as tools of my trade and can assert today that although statistics present trends, more importantly, they can tell us a lot about consumers and how their pattern revolves around events, and how those events shaped our past, shed light on our present and although may not predict the future, they certainly provide us with the confidence to move forward.

Even in its simplest form, a collection of total annual sales during a 10 year period can certainly show how the macro economics and local situations (micro economics) shaped sales, but look deeper, and the real story emerges, on consumer behavioral changes and how we, as an industry, accepted the challenge, searched for the change, adapted. The end result? I’m not a guru nor pretend to be so, but 2011-2020 looks very bright to me.

Source; Puerto Rico Automobile Retail Sales Report 2001-2010.

1994 – 2000: The Groundwork

The Puerto Rico Automobile Retail Sales Report, the official retail statistics for the industry was born in 1994. Basically this is the benchmark until now.   Although now official statistics, prior to this period, the statistics show an average sales of 117,900 new vehicles during the period. 1994 sales total was 108,000 new vehicles; this is healthy to theorize that at the beginning of the decade, Puerto Rico was in the low 100K sales level, the year by year review shows a crescendo and steady growth ending in 2000 with 123,400 unit sales. This decade was marked by the third largest sustained expansion period since World War II. This combines with steadily but moderate growth in the employment, low inflation and interest rates which ended with a projected budget surplus by 2001 FY¹. Given the parallelisms between the United States and Puerto Rico’s economy, we saw the cascading effects being transformed into massive public works projects injecting billions to the economy. A growing employment and economy fuel consumer confidence and thus their appetite for durable goods, amongst them, cars. Credit, at all levels, was there to those who needed it. This decade basically sets the stage for the first half of the 2000’s.

2001 – 2005: Reaching 140K!

The conditions that marked the previous decade continue their trend with the exception of the end of 2002 and part of 2003, where the second Iraq conflict creates a hiccup that soon is reversed by the GDPR growing again. If we review the trend on local automobile sales, we could conclude that by 2002-2003 we had hit a plateau or even foreseen a flat to decreasing trend, but in a sense, this was provoked by a mild recession and no one could predict at that time that we would recover and were on our way to a record year in sales in 2005 with a total of 140,364² units, a historical milestone! Will it ever be repeated?

2006 – 2010: After the Bubble, What?

Two events marked what would be the rest of the decade; the local government’s decision to close operations in early May 2006 combined with the introduction of the IVU on 2006 as well and the worldwide recession which officially was declared in the United Sates in 2007. The government closing and IVU implementation marked the beginning of the Creole recession (“recesión criolla”) the government deficit, squabbling between the executive and legislative powers, and several other factors combined for a negative growth of the local GDP. The impact on the industry was immediate as we saw a sharp sales reduction with a -19.1% YOY. 2007 was analogous to the 80’s Savings and Loans crisis, the 90’s dot Com crisis, and the financial or mortgage bubble burst, but contrary to the previous recessions, this one had worldwide implications amongst the most powerful economies. The party was over, leaner times were coming ahead, and unemployment in Puerto Rico dropped to record levels after Public Law No. 7 was passed. Also, inflation and a credit crunch set the stage for the rest of the decade. In Puerto Rico, for the first time our economy presented signs of losing the parallelisms that permeated our relationship to the economy of the Unites States; this, due to the fact that our recession began almost a year earlier and that whereas the United Sates is beginning to show signs of recovery, our forecasts are not as promising. Contrary to 2005, 2009 marks another milestone, this one sad, the lowest year in recorded sales since the inception of the Puerto Rico Automobile Retail Sales Report, with 76,414² new units sold. This coincides with the toughest labor market to date, bankruptcies and highest unemployment level in years.

And the Consumer?

The three previous recessions, especially the ones in the early 90’s and 00’s were incredibly mild compared to the current one, thus the benchmark is basically against the 1930’s recession. While researching for this article I tried to find one very interesting piece I read in The Economist some months ago. Since I did not found the edition I cannot quote it directly, but I clearly recall that the author was citing a study conducted after the first depression on habits of the consumer. While sharing that it took over 10 to 15 years for consumer confidence and spending habits to come back to pre recession levels, he went on to explain that the current recession, not only changed habits, but created a more “pragmatically” mindset which came to alter the priorities and perception of value.

Automotive sales through the current decade, in view of the aforementioned economic factors and consumer behavior changes, reveal some very interesting insights. Let’s review the numbers for the key segments in Puerto Rico: B (sub compact), C1 (compact), CD (Mid size), UC1 small SUV and UM1 medium SUV. When added up, the total sales of this segment average 69% of total sales throughout the decade and represented as high as a 75% average of total sales during the second half of the decade.

Source; Puerto Rico Automobile Retail Sales Report 2001-2010.

The decade in general shows a clear shift in preference from Compacts (C-1) to Subcompact cars (B), as well as to Small SUVs (UC1) . This, may be due, to some extent, to the expense of Compacts and Midsize. The shift begins timidly but makes it evident during the second half 2006 – 2010 when you compare the average market share for both. Certainly our review of the macroeconomics plays a natural and logical role to explain this but there’s also a consumer telling us a lot. Has the recession changed consumer perceptions about quality? Just take a look into the movement in terms of country of origin (brand wise). Does the loss in consumer confidence play a role? Certainly, but in Puerto Rico a car is not a luxury. Therefore, I still need to buy a car. Perceptions of quality (brand and origin), needs (family size) and wants (stereo, leather, cruise control, alloy wheels) are redefined on this and other categories. Marketing wise, I have shared with other colleagues and our own research shows that A (socio economical) consumers are behaving like B consumers; B are behaving like C, and such. All of a sudden, the article I read makes perfect sense and thus, we can establish what could be the trends for time to come. Mid size SUVs show an increasing trend as for 2010. Although mostly driven by rental fleets, still there’s a consumer in the waiting. Is it the end of a very dark period?

What the future holds. I have always asked for a crystal ball on Christmas. Since I’ve never received one, please do not take my opinion for granted. One thing is clear, 2010 ended with an over the top rebound. Of the nine economic indexes from the Government Development Bank, four of them showed improvements YOY, being Motor Vehicles Sales one of the four (Staff, 2009). A double digit sales increase (17.1%) heralds what may be that we are well under way to recovery. “After facing the most challenging on record in 2009; as the local economy experiences it’s third consecutive year of recession –the Puerto Rico Auto Industry since then has bounced back in remarkable fashion” (Carmona, 2009). The market presents its cyclical nature and that it is highly susceptible to the economy, but 2010 shows that the market may have stabilized and that our industry has accepted the challenge, become leaner and more responsive to the consumer needs and wants, in view of the new behavioral paradigms.

A decade of Records?

It certainly was. On this rollercoaster we took on 2001, we saw the highest sales recorded in history and by the time we stepped out of it in 2010, we saw that record drop to almost half of those sales, for the worst year on record as well. Will we ever see a 140,000 plus again? Don’t know when, but certainly, we should not in the coming decade. In a best case scenario, I see levels previous to 2005 coming through. The decade through the sales statistics is telling us a story, if you look deep enough and ask the questions, they (statistics) will provide you key answers and although you cannot predict the future it certainly can provide us with a robust benchmark from which we, as an industry, can continue leading the recovery for all Puerto Ricans; ready, willing and able to accept the challenges. What will happen in 2011? That’s another “story”.