New tough law on used cars out

THE Uganda National Bureau of Standards (UNBS) will on November 1 launch the pre-export verification conformity-to-standards scheme, targeting the road worthiness of all used vehicles imported into the country.

The inspections will be conducted from the country of origin before the vehicles are imported. The scheme will focus on detailing the condition, accessories, structural, functional and mechanical integrity of used vehicles destined to Uganda prior to importation.

Certification will then be issued to the vehicles that are appraised as road worthy and a report attesting to the inspection and certification will be given to the importer.

The UNBS explained in a statement this week that the country was experiencing an unprecedented influx of imported used vehicles, mostly originating from the Middle East, Japan and Europe.

“Unfortunately, some of these vehicles are substandard and in dangerous mechanical conditions that can endanger the public and the environment,” the statement said.

“In addition, some of the imported cars are obtained illegally in the country of origin and shipped to Uganda without following proper procedures.

“The situation is compounded by the fact that second-hand vehicles in most cases produce impermissible levels of emissions that pollute the environment, thereby adversely contributing to climate change,” the statement added.

The Japan Export Vehicle Centre Company, Jabil Kilimanjaro Auto Elect Mechanic & Paints Company, together with the East Africa Auto-Mobile Services, have been contracted to handle the exercise, expected to further increase the costs of imported used cars.

Richard Ebong, a UNBS senior market surveillance officer, told clearing and forwarding agents at a sensitisation workshop at Hotel Africana in Kampala that used vehicles entering into the country without an inspection certificate will be subjected to a penalty of 15% of the cost, insurance and freight (CIF) value. In addition, they will also be subjected to inspection.

Inspection fees for cars originating from Japan will be $145, Singapore $180, the UK 125 pounds, South Africa 1,685 rands and Dubai $125.

Kassim Omar, the clearing and forwarding national chairman, called for more public sensitisation to avoid the conflicts that may arise during the implementation of the scheme.

Japan's Great Auto Shift

What do American used cars, government incentives, and China have in common? They each get credit for a rebound in Japanese auto makers' fortunes.

But only one of those -- China's hunger for cars -- is something the companies can count on to continue.

Expected to post a second-quarter loss Thursday, Toyota Motor instead reported a $242 million profit. With substantial cost cuts ongoing, it joined rivals Nissan Motor and Honda Motor in upgrading earnings forecasts for the year ending in March.

The rebounding value of used cars in the U.S. played a big role in this. Lower reserves for cars on lease and loan-losses contributed $810 million in operating profit at Toyota, and $817 million at Nissan. Both items were financial drains last year.

No doubt, the U.S. cash-for-clunkers program helped, as did similar incentives in Japan. Toyota topped the sales list under the U.S. program.

Neither of these is sustainable -- the clunker program, of course, has already ended. Sales growth in China, on the other hand, will continue.

Nissan's been a real beneficiary lately thanks to its small cars and a distribution network that reaches further inland than its rivals. Its sales in China are up 19.3% in the six months through September, but dropped in every other market. By the March year-end, China will have displaced Japan as Nissan's No. 2 market by volume.

Admittedly, a key driver of sales growth has been a tax cut that Beijing may or may not extend into next year. Some consumers, fearing its end, may have brought forward car purchases, which means sales will undoubtedly slow from their current heady pace.

But an improving economy, demand from second-and third-tier cities and increasing use of financing will keep growth going. Sales of Japanese cars in China, J.D. Power & Associates projects, will grow at 6% to 9% per year in the coming few years -- faster than the overall market.

The companies don't yet break out China profits, which pass through joint ventures. But the "other" category into which Nissan lumps Chinese earnings generated $314 million in operating profit in the first half of the year -- almost a third of the total.

There are risks in heavily depending on a single market for sales growth. With China, though, the greater folly would be not being there at all.

Dealers say used-car stocks are dwindling

HOUMA — As sales of new cars remain low, local used-car dealers say they're having trouble keeping up their inventories. Fewer new-car sales means fewer of the used trade-ins they sell to their customers, they say.

Independent dealers say the prices they pay for used cars are rising. And customers are facing diminishing selection and higher sticker prices.

When sales of new cars were up, the dealers say, new-car dealerships had stock they were willing to sell at a price the used-car lots could afford. Now the new-car dealers are holding on to more of the trade-ins they receive because their sales volume is down.

In Terrebonne Parish, tax records show new-car sales were down by 26 percent in September when compared with the same month in 2008. Lafourche does not break down sales tax by type.

Melissa Wyman, owner of Melissa's Auto Sales on East Main Street in Houma, was among dealers interviewed Monday who said there's plenty of evidence to demonstrate the trend. Increasingly harder to find, she and other dealers said, are the low-mileage, well-kept vehicles customers want.

“We used to be able to buy them. There were a lot of them out there to go get,” she said, referring to used cars meeting the grade she is comfortable offering to her customers. “I've been in business 20 years and never seen it like this.”

Wyman has had as many as 35 vehicles for sale on her lot at one time. Right now she's down to eight.

Kevin Rembert, a former Houma auto dealer now operating in Slidell, serves on the Louisiana Independent Automobile Dealers Association's board of directors. Rembert said there are several ways consumers will be impacted by the shortage.

“There will be a smaller selection for you to pick from,” he said. “You may not get exactly what you want sometimes and you may end up having to pay a little more for them.”

Rembert described the issue as “a little bit of a shortage” largely caused by people not trading in as many cars.

“Consequently there are less new cars on the market. New car sales are down, so since they are selling less new cars they are trading less … It's a snowball effect,” Rembert said.

Cars are also lasting longer, Rembert said, and people are holding onto them longer.

At N&N Auto Sales on West Main Street, salesman Ryan Arceneaux said the shortage has made for lean times.

“We're getting them, but it's few and far between,” he said of the inventory that helps him make a living.

The federal government's “Cash-for-Clunkers” program made a dent in the market too, some dealers said. Cars that were traded in under the program can't legally be resold. And one person's “clunker” could be another's dream car or truck. Arceneaux said big Ford pickups, for example, are all the rage among buyers locally and he's having trouble keeping them in stock.

New car dealers who also have used cars on their lots reported fewer difficulties than those whose stock is entirely used.

Used dealers did express hope that the shortage will be temporary, and improve as the economy recovers.

“I think after the first of the year it might get a little bit better,” Melissa Wyman said.

Ford's New Lease on Life

Ford Motor Chief Executive Alan Mulally loves to wax lyrical about the car company's slate of new trucks and cars. But he can thank sales of used vehicles for playing a big part in Ford's surprise third-quarter profit.

Out of pretax profit of $1.1 billion, excluding special items, $661 million came from financial services. Many analysts expected a profit of perhaps $100 million to $200 million, or even a loss, from Ford Motor Credit.

The big swing factor was a sharp increase in the value of used vehicles sold at auction. The Manheim Used Vehicle Value Index has risen for nine consecutive months since December 2008's low point, hitting an all-time peak in September. Higher used-car prices reduce losses on vehicles that come back to Ford after their leases expire, which it then sells. Pricing of used trucks and sport utility vehicles has risen particularly strongly.

Ford monster truck crushing clunkers at the Sawgrass Ford dealership in Sunrise, Fla.

Is it sustainable? Manheim, at least, suspects used-vehicle prices are reaching a plateau, with prices weakening noticeably in the last week of September. The dislocation in Detroit this year and efforts by the likes of Ford to sharply reduce bloated inventories have helped curb supply. That discipline will need to be maintained.

On the new-vehicle front, it remains to be seen how well sales hold up as government "clunker" programs end. Ford does boast one of the strongest new-product pipelines in the industry. But while Ford raised its guidance for 2011, it will be next quarter before it issues an updated outlook for 2010. And its decision to raise another $3 billion from investors speaks to the need to fix its balance sheet. Like any other auto maker, it needs a consumer-led recovery that isn't dependent on government steroids to really come into its own.

Ford May Be on a Roll, But Consumer Data is Still Mixed

A third-quarter profit at Ford (F) gave a big push to that Ford bandwagon I wrote about here recently, even though Ford itself sounded some cautionary notes in its third-quarter presentation.

Results for Ford’s captive finance company, Ford Credit, illustrate why. Even though economists are reporting that the current recession is already ended, consumers are giving mixed signals.

For instance, repossessions as a percentage of Ford Credit’s total portfolio remain high, relatively speaking, at more than 3 percent. Ford Credit’s average loss per repossession is down, but that’s probably a function of improving used-car values, rather than a positive reflection on consumers. Improved used-car values mean higher values for repossessed cars and trucks. Ford Credit auctions them off to dealers.

At the same time, delinquencies over 60 days old are trending down at Ford Credit. That could mean consumers are having an easier time keeping up with payments, but it could also reflect higher standards at Ford Credit for who gets a loan in the first place.

Meanwhile, Standard & Poor’s upgraded Ford to “Buy” from “Hold” yesterday on the strength of a nearly $1 billion quarterly profit for Ford, versus the rating agency’s earlier prediction of a loss, plus Ford’s forecast that it will achieve profitability for a full year sooner than expected, in 2011.

Interestingly, even though Ford upgraded its 2011 forecast yesterday, the company continues to soft-pedal the short-term outlook for the rest of 2009 and 2010.

Media coverage of Ford’s results emphasized the “surprise” aspect of the net profit, although there had been some hints beforehand that Ford had good news in store.

Fox Business News, for instance, did a mostly admiring interview with Ford President and CEO Alan Mulally. Interviewer Liz Claman did get in a couple of pointed questions, although she kicked off the interview by saying, “Talk about how you did it, Mr. Mulally!” She later added, “They’re never going to let you retire, Alan.”

The pointed questions were whether Ford could sustain a profit without the help of Cash for Clunkers, which helped third-quarter results. Mulally hedged and reiterated Ford’s earlier guidance that it will achieve positive cash flow in the fourth quarter. That’s a good thing, but short of a promise that Ford will achieve a fourth-quarter net profit.

Claman also asked what Mulally planned to do, to address Ford’s “angry” UAW workers in the United States, who rejected Ford’s latest proposed concessions. Separately, the same question came up earlier in the day, in Ford’s conference call with reporters and analysts.

Characteristically, Mulally ducked the question whether the union workers are angry and resorted to a Mom-and-apple-pie statement about “providing opportunities” and “competitiveness.” That may be bland, but Mulally is smart to avoid providing the UAW with locker-room quotations that can be used against him. The Ford bandwagon is rolling anyway, without a lot of grandstanding.