Auto Sales Fall 27% As Credit Tightens
Thursday, October 2, 2008
Americans steered clear of auto dealerships in September, sending sales of new cars and trucks tumbling as credit conditions tightened.
Overall, automakers sold 964,873 new cars, trucks and minivans in the United States last month, a fall of 27 percent from September a year ago, according to preliminary data released yesterday by the industry research firm Autodata.
General Motors, Toyota, Ford and Chrysler, the four largest automakers in the U.S. market, reported double-digit sales drops. GM said sales sank 16 percent in September vs. a year ago. At Toyota and Ford, sales were down 32 percent and 34 percent respectively. Chrysler's sales eroded 33 percent.
Auto sales is typically one of the first sectors to feel the sting of a slowing economy as consumers pull back from big-ticket purchases.
September's sales, translated into the closely watched seasonally adjusted annualized sales rate, or SAAR, slipped to 12.5 million. That was the slowest pace since the 1990-91 recession. In recent years, auto sales have boomed, hovering in the 16 million annual range and topping 17 million in 2005. U.S. sales have totaled 10.8 million for the year so far, down 13 percent, according to Autodata.
Industry executives began the year thinking they could sell 15.5 million new vehicles this year. But forecasts have dropped steadily as the year has progressed.
"It looks to me like the sales we are experiencing this quarter are well below a normal trough of the auto market," said Bob Schnorbus, chief economist at J.D. Power and Associates. "It sort of crashed the floor," he said.
Schnorbus said there were anecdotal reports from dealers that some consumers who wanted to buy cars were being turned away because they couldn't get financing. He estimated that such problems trimmed the annualized sales rate by 500,000. He said economic problems are being compounded by financial problems, leading to lower sales.
Executives yesterday tied the grim results to weakening economic conditions, turmoil in the housing market and the public's fears about the financial system. Speaking on monthly sales calls, Michael DiGiovanni, GM executive director for global and industry analysis, and other auto executives said passage of the federal legislation meant to shore up the financial system was critical to the industry's health.
DiGiovanni predicted "serious consequences" if a deal fails in Washington and businesses are forced to abruptly curtail spending because of lack of credit availability. He said passage of the legislation would help stabilize the housing market, stemming foreclosures and bolstering prices.
"It's at the heart of what needs to happen," he said.
GM earlier this year estimated that it is losing 10,000 to 12,000 potential sales a month as customers with weaker credit standing get shut out of the new-car market. The number is probably growing, said Mark LaNeve, GM's North American marketing chief. He said banks are requiring customers to contribute larger down payments to complete car loans.
"Consumers and businesses are in a very fragile place," said Jim Farley, the marketing chief at Ford, which is launching a new version of its popular F-150 pickup truck this fall. "An already weak economy compounded by very tight credit conditions has created an atmosphere of caution."
Even before Wall Street's troubles, automakers were facing the most difficult sales year in decades in the United States, the world's largest and most profitable market. Automakers have been battling oil price swings, the slowing of the economy and Hurricane Ike's damage to Gulf refinery capacity.
Japanese automakers, which have generally fared stronger in the market than the Detroit companies, also were hurt by the weak market. Toyota sold 144,260 vehicles in September, nearly 70,000 fewer than a year earlier. Honda's U.S. sales fell 24 percent, and Nissan's dropped 37 percent.