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Auto Sales Dropping to Lowest Level in 20+ Years

LCT Staff
Posted on October 16, 2008

DETROIT - Deepening concerns about the economy and tight credit dried up demand for cars and trucks in early October, leading some forecasters to predict a drop in the monthly selling pace to the lowest level in more than 20 years.

"We're seeing a real weak month," said Jim Farley, Ford Motor Co.'s head of sales and marketing. He told reporters that the government's initiatives to stabilize the banking system made him more optimistic but that he hadn't seen any tangible effect from the rescue effort on auto sales.

Several analysts said the government's move to inject $250 billion into banks to pump more credit into the system would benefit the economy. But they said it would take time to restore the confidence of consumers alarmed by plunging financial markets and mounting job losses.

Some forecasters predict this month's selling pace might fall below 12 million cars and trucks, the lowest level since the early 1980s. In the most pessimistic prediction for October, Deutsche Bank analyst Rod Lache said the annualized selling pace might sink as low as 11 million cars and light trucks for this month - the lowest level since April 1983.

"Several automakers have commented on a dramatic fall-off in customer traffic during the final week of September, and we believe that this has continued," Lache said in a research note.

Auto executives said it was too early to make predictions, noting that most sales occur in the last 10 days of the month.

But most executives agreed that demand remains weak and is unlikely to rebound soon. "With each month that goes by, we see more jobs being shed," said Ford's market analyst George Pipas.

"Fundamentally, the economy looks pretty weak right now," Pipas said, adding most economists expect the weakness to persist into 2009.

The government's vigorous efforts to shore up the economy will benefit banks and corporations first, said auto analyst Rebecca Lindland at Global Insight. "Consumers aren't going to feel the effects quite yet."

The move by GMAC Financial Services on Monday to finance new car loans for customers only with very high credit ratings - FICO scores above 700 - suggests tight credit will remain a problem for many consumers, she said. "I don't see a recovery until consumers believe they can get a car loan when they go into a dealership, and that they can afford the car."

The pace of sales has been slowing throughout the year, sinking to a 17-year low of 12.5 million units in September.

But as the economy has weakened, oil and gas prices have retreated from more than $4 a gallon to around $3.20, on average, said Paul Taylor, chief economist at the National Automotive Dealers Association. "That's the bright spot in the month."

He said consumers who previously flocked to small, fuel-efficient vehicles in short supply may consider a broader range of models now that fuel prices have subsided. He predicts the selling pace this month may be around 13.5 million vehicles.

Source: Detroit News

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