August was a down month compared to August 2009; no Cash for Clunkers this year. However, YTD comparisons show 2010 light vehicle sales are up over last year by about 590,000 units (this includes August results). The projections still peg total year sales at about 11.5 million.

Apparently, some of the manufacturers have heard the marketplace and are reacting. While we’re waiting for the new smaller, more-efficient models to hit the showrooms, several manufacturers are offering smaller engines across all the trim levels in some of the smaller models. This allows buyers who want well appointed and equipped vehicles to get them with smaller, greener engines. You can get a 4 cylinder with heated seats and navigation now. Hopefully this trend will catch on and become the norm and we’ll be driving the most economical vehicles available, but doing it comfortably.  

The employment situation is still gloomy. August unemployment rate was termed “about unchanged” by the Bureau of Labor Statistics. The Private Sector added only 67,000 jobs while Government employment fell by 121,000 (114,000 were temporary positions). The net across all sectors was 54,000 jobs lost.

I heard an interesting perspective on employment recently. There are two components to the private sector’s 67,000 job increase in August; hiring and firing. 67,000 more people were hired than were fired.

Over the last several (recessionary) years, the firing rate has remained relatively stable. It’s the hiring rate that has dropped precipitously. Two reasons for that come to mind immediately. First, business has figured out how to be more productive and when workers leave, they are not replaced. But the productivity numbers are starting to reflect that productivity has peaked. Q2 number showed a decline in productivity for the first time since Q1 ’09.

Second, business is not investing and expanding. It’s sitting on cash waiting for better times and stronger indications of economic expansion. In my opinion, that’s short-sighted. What better time to invest and expand? Rates and prices are at historic lows. And now that productivity has peaked, investment in process and/or plant and people will be required to maintain output. I think we’re poised to see some more meaningful additions to the jobs numbers.

From our perspective as used vehicle remarketers, we need employment numbers to increase. Without more people working, demand for vehicles will not increase. Current demand, light as it is, continues to support used vehicle prices because supply is limited. Inventories at dealers and auctions are far below last year’s levels. But the short supply will be alleviated somewhat in the coming weeks by rental companies going through their seasonal de-fleeting.

Next year’s new vehicle volume projections call for around 1 million more sales. That will increase the used vehicle supply. Without a corresponding increase in demand (more people working) there won’t be support for used vehicle prices.  At the remarketing end of the business, the recovery is consumer driven. In very simple terms, Jobs = Demand = Higher Used Vehicle Values.

So what does this mean for fleet? My recommendation is cycle sooner rather than later. Increased demand is likely to lag the increases in supply and that will drive prices down. We want to be in the market ahead of the supply increase.

I also recommend buying the smallest tool that will do the job effectively and efficiently. Long term, the trend is in favor of smaller, greener, well-appointed vehicles.