Ask for Discount Auto Deals

Posted on October 2, 2008 by LCT Magazine

Credit crisis hits auto sales

U.S. financial squeeze makes car loans scarce; Dealers struggle as Sept. sales sink 27%

DETROIT - U.S. auto sales plunged nearly 27 percent in September to less than 1 million vehicles as the credit crisis kept many would-be buyers from getting loans and the Wall Street meltdown further undermined consumer confidence.

The sales slump adds to the pressure on the nation's struggling automakers, which have been battered by high gas prices and the implosion of the housing market.

The dramatic drop in vehicle demand also has forced some big dealers to close their doors, while tight credit markets are hampering automakers' efforts to help dealers consolidate.

Like the rest of the country, the auto industry is closely watching developments in Washington, hoping that a bailout of the banking sector will soon get customers back into showrooms.

The six biggest automakers all reported steep declines in September, including Japan's top carmakers, which have been more resilient in the deteriorating market, particularly as rising gas prices stoked demand for fuel-efficient cars.

Nissan Motor Co. showed the biggest slide in the industry, 36.8 percent. Toyota Motor Corp. sales fell 32.3 percent and Honda Motor Co. sales dropped 24 percent.

Among Detroit's Big Three, Ford Motor Co. had the worst month, with sales falling 34.5 percent. Chrysler LLC's sales plunged 32.8 percent. General Motors Corp. beat analyst estimates with a 15.6 percent sales decline, due largely to its employee-pricing-for-everyone deal that ended Tuesday.

U.S. auto sales have not dropped as low in at least 15 years and September marked the 11th consecutive monthly decline -- the worst stretch in 17 years.

The Wall Street financial crisis, coming on the heels of high gas prices that spurred a consumer shift away from profitable pickups and sport utility vehicles, scared buyers away from showrooms last month, auto industry executives and analysts said.

"It was tantamount to a natural disaster," said George Pipas, Ford's top sales analyst. "The question is, have we reached the bottom?"

The sales pace slowed far below last September's annualized rate of 16.19 million to 12.5 million light vehicles, Autodata Corp. said. The annualized rate is the number of vehicles that would be sold if the pace continued for a full year, adjusting for seasonal changes.

Truck demand stayed weak, with sales off 31 percent to 485,342 units, but cars sales were not strong either, falling 21.6 percent.

Dealers reported barren showrooms in late September as some prospective buyers stayed home and others tried to buy but failed to qualify for auto loans. Banks have tightened lending amid the widespread mortgage defaults that led to disruptions in the financial markets and the collapse of several banks, prompting Congress to debate a $700 billion bailout plan that automakers hope will unlock the credit market and spur sales.

"We saw how markets reacted the first time it didn't get through, so there is some sense of urgency," GM President and Chief Operating Officer Fritz Henderson, speaking on the sidelines of the Paris car show, said of the bailout plan, which was rejected by the U.S. House on Monday, but passed by the Senate Wednesday night. "Our view is it's really important for the country."

Compounding the credit problem is automakers' financial arms halting or restricting lease options.

"It was all about gas prices a few months ago, now it's all about availability of credit," said Mark LaNeve, GM's vice president of North American sales.

Ford economist Emily Kolinski Morris said there may be ups and downs in sales in coming months, but the market will remain depressed.

"It's unlikely that we'll see any significant improvement in the underlying trend of sales any time soon," she said. "Given the lack of resolution to the financial crisis, I don't think anyone can say where the bottom might be."

Any bailout would not have an immediate impact, she said, but is a "necessary first step" to breaking the logjam in the credit markets.

Dealer George Gorno Jr. of Gorno Ford in Woodhaven said his sales were "basically flat" year-over-year, but the credit crisis has prompted more customers to buy vehicles rather than lease because terms have become less favorable.

The credit crunch has all but ended his ability to sell or lease vehicles to people with poor credit.

"The banks we normally use for that have really tightened up," he said, noting that Ford Credit does not do subprime loans. "We just can't get loans for a lot of these people now."

Through Sept. 20, almost 81.4 percent of U.S. buyers with prime credit were approved for auto loans, compared to almost 91 percent a year ago, according to CNW Research. Subprime borrowers took the brunt of the tight credit market, though, with only 22.7 percent getting loans through Sept. 20. Last year, 67 percent of those same buyers were approved for loans.

Sen. Charles Schumer, D-N.Y., warned that many consumers with credit scores under 720 couldn't get a car loan, and the Wall Street rescue package could help more people buy cars.

"If that stays, we will sell 6 million fewer cars" in a year, Schumer said, warning that tens of thousands of autoworkers in Detroit and around the United States could lose their jobs. "That's not right. That's not fair. That's the system in which we live."

Sales fall further when those who might qualify for loans stay home.

Mike Stanford Jr. general manager of Varsity Lincoln Mercury in Novi, said his sales were down about 24 percent in September.

"A lot of people are still sitting on the fence," he said. "It's even worse outside of Detroit."

Buyers with reasonably good credit shopping at Crestview Cadillac in West Covina, Calif., largely have been unaffected by the credit crunch, though they have had to make a down payment, dealer Scott Allen said.

But the days when customers who owed more on their existing vehicle than it was worth could still trade it in for a new model are gone, he said.

He has seen about a 15 percent drop in sales compared to last year.

His dealership is using some incentives on leases that don't go through GMAC Financial Services, but monthly payments are much higher now.

"Keep in mind that we used to lease $50,000 Escalades at $600 per month," Allen said. "The payments now are over $1,000."

Meanwhile, Toyota said showroom traffic was off substantially -- 50 percent according to an estimate Toyota called "directionally correct."

Toyota's sales were hit by hurricanes in the Gulf states, gas shortages across the Southeast and continuing housing woes in California. Sales in those regions were off 40 percent to 45 percent, said Don Esmond, vice president of automotive operations for Toyota Motor Sales USA.

The credit crisis is attacking dealers, forcing record numbers out of business, said Paul Melville, a partner at restructuring firm Grant Thornton LLP.

Consumer confidence is low, credit is constricted, subprime borrowers have little chance of getting a loan. At the same time, dealers' cost of borrowing is increasing.

Rates for floorplan financing, which dealers use to cover the cost of vehicles on their lots until they are sold, have been going up.

On Wednesday, for example, Ford announced that it will increase interest rates to dealers by 50 basis points next month.

The housing slump and Wall Street financial crisis have forced some dealerships to close or consolidate, said the National Automobile Dealers Association.

The group's chief economist, Paul Taylor, said 590 of the nation's 20,770 dealerships have closed this year -- the most in two decades. Last year 430 dealerships closed.

Taylor said dealers were a tough bunch despite credit woes and other issues.

"These are stubborn guys, in some cases in business for three generations," Taylor said.

Source: The Detroit News

View comments or post a comment on this story. (0 Comments)

More LCT Blog Blog Posts

July 18, 2017

Getting It Wrong On Uber’s Return To Austin

See Exhibit A on the misleading spin the limousine industry faces when exposing the unfairness of TNCs.

July 18, 2017

Comic Conventions Can Be A Geeky Goldmine

It’s time to tap into your inner nerd and expand past traditional tradeshow group transportation.

July 6, 2017

Welcoming All Back To The New LCT Blog

JIM LUFF: I'm not retired, tired, or tuned out. Just immersing in other areas of the industry.

March 8, 2017

Immigration Issues Can Hit Limo Operators

Illegal or not, immigrants in one California region spend hard-earned money on renting stretch limousines.

March 1, 2017

Did The Dent Fairy Come To Visit You?

Unlike the tooth fairy and baby teeth, the dent fairy never runs out of vehicles.

See More

Facebook Comments ()

Comments (0)

Post a Comment



See More

LCT Store

LCT Magazine - July 2017 $12.95 COVER STORY: * Why These Titans Work So Hard to Give it Away * *
LCT Magazine - June/Fact Book 2017 $47.95 * Facts & Stats * Directors & Guides *


Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment


Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close