Pox on Housing Takes Wind Out of Auto Sales

Car companies are bracing for one of the slowest sales years of the decade as weakness in the housing market ripples through the auto industry.

Sales of new cars and trucks in August were flat compared with a year ago, and analysts said they expected them to be weak for the remainder of the year. Company officials are blaming soft economic growth, high gas prices and tight lending standards -- problems that they say are forcing consumers to stretch paychecks, shore up savings and postpone car purchases.

Jim Lentz, Toyota's top U.S. sales executive, said consumer credit problems tied to the subprime mortgage squeeze "challenged" consumer confidence in August.

Paul Ballew, chief market analyst at General Motors, said that the automaker expects growth of less than 2 percent this year and planned to cut production in the coming months. "It's a balancing act, and right now in North America, that balancing act is challenging," he said. "We have an industry that's clearly in the midst of some type of mild contraction."

Lower sales and profits could put more pressure on auto company officials in Detroit who are trying to manage the sales contraction during large-scale operations overhauls. It could also bring new strains on auto companies such as Toyota, which might be forced to dial up profit-draining incentives to drive sales.

Auto company analysts have steadily lowered sales forecasts this year because of the housing slowdown. Many expect U.S. auto sales to be about 16.2 million units this year; sales haven't been that low since 1998, when 15.5 million units were sold.

"Everybody has lowered their forecast 300,000 to 400,000 units from where it was two months ago," Van Jolissaint, Chrysler's chief economist, said last week.

Jolissaint blamed the meltdown in subprime lending and a deeper recession in housing than financial analysts had expected.

"It's all about the customer and their confidence," he said. "There's a tightening on big-ticket items. We will continue to react to that."

Among individual companies, results for August were mixed. GM reported a 6.2 percent sales increase, led by robust sales of discounted pickup trucks. Ford was down 15.1 percent, and Chrysler slipped 6.1 percent.

Toyota, which has muscled past Ford for the No. 2 slot in U.S. sales, said vehicle sales in August dropped 2.8 percent. Other foreign brands performed well, however. Honda sales grew 4.7 percent, and Nissan had a 6.3 percent increase.

Japanese companies continue to produce the dominant car lines, despite a new crop of competitors from Detroit.

Honda sold 47,360 Accords and 28,551 Civics last month. GM's top car remains the Chevrolet Impala, a large sedan. It sold 24,929 last month. The Fusion, a new mid-size sedan, was among Ford's biggest sellers at 12,511.

GM fared better with pickup trucks and crossover sport-utility vehicles, while Toyota was hurt by falling demand for its large SUVs .

Jesse Toprak, an analyst at Edmunds.com, said he didn't expect a big recovery in auto sales this year but that the year's declines don't represent a dramatic drop-off in underlying demand. "Anytime we sell over 16 million units, it's a very healthy new-car market," he said.

Jolissaint, the Chrysler economist, said the economic outlook appears to be improving from early August, when he was predicting a 30 percent chance for a recession. Chances of a recession are lower today, he said, but said he isn't chancing a new figure yet.

"I'm brave," he said, "but I'm not telling the senior management what my number is right now."