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Too Many Cars, and They're Not on the Road
When the bottom finally fell out, many people found themselves with loans worth more than the cars, just as millions of Americans owe more on their mortgages than their homes are worth.
"People were taking all kinds of risks buying cars beyond their means," said John Townsend, a spokesman for AAA Mid-Atlantic. "The cars that they drive are not worth what they owe on the car."
The result has been an increase in the repossession rate for autos, he said, as well as higher delinquency rates on car loans and fewer people venturing onto the nation's car lots.
"The uncertainty in the economy is causing consumers to postpone making big-ticket purchases," said Jesse Toprak, an analyst with Edmunds.com. "Cars are the second-most expensive purchase a consumer can make after their homes. We are seeing consumers holding on to cars longer than in the past. The average used to be 4 1/2 years, and now is probably going to go over six years."
In addition, many auto repair shops and do-it-yourself retailers such as AutoZone have seen a boost in business as the GMs and Chryslers of the world have suffered.
"The big question is, how do you jump-start auto sales again? Or can you?" Townsend said.
The big automakers are certainly trying.
GM and Ford have announced programs that assist buyers with up to nine months of car payments if they lose their job. Car loans in many markets are becoming easier to get, though most buyers have to show that they are employed and earn enough to cover both a mortgage and a car payment. GM announced this week that it would lend to buyers who had credit scores below 620, which is considered a high-risk, subprime consumer market. A few months ago, the credit score threshold was 700.
GMAC, the financing arm of GM, has taken steps to reduce the cash crunch many dealers face by temporarily waiving some dealer fees, eliminating loan payments on aging unsold cars and postponing wholesale interest charges. It also announced that it would make $5 billion available over the next two months to expand lending to potential car buyers.
Most analysts agree that the auto market will probably not rebound until people feel more secure in their jobs. As with housing, an intrinsic link exists between the health of the economy and the health of the auto industry.
"There's a tremendous correlation between people who work and own automobiles," Pisarski said. "If you look at where the cars are, that's where the workers are. If employment doesn't grow, car ownership doesn't grow."
The shaky economy has kept consumers at bay. Nine hundred car dealers closed in 2008. The National Automobile Dealers Association calculates that another 1,200 will shutter this year.
While it lasted, the car bubble effectively masked significant structural problems at GM, Ford and Chrysler, as well as at foreign automakers like Toyota, which ramped up production in the United States in recent years but suddenly found itself burdened with inventory it couldn't sell. The bursting of the bubble has exposed the precarious nature of the industry and made clear that bankruptcy might be the most feasible option for U.S. carmakers.
In the meantime, new cars nobody wants to buy continue to pile up in Baltimore and at ports around the globe. Last month, when space filled up at one Swedish port, Toyota was forced to lease a cargo ship as a sort of floating parking garage for 2,500 unsold cars.
Staff writers Kendra Marr, V. Dion Haynes, and Thomas Heath contributed to this report.