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Like a Rock: Sales sink fast at auto dealerships as credit tightens, consumers worry
AP Photo
A sale sign adorns the rack on which an unsold Colorado pickup sits at a Chevrolet dealership in Lakewood, just west of Denver.
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Published: October 2, 2008
NEW YORK
Dismal September auto sales may be one of the clearest signs yet that faltering consumer confidence and tighter credit are squeezing consumer spending.
"It went from the housing market to the car market," said Reggie Chambers III, sales manager at Anderson Automotive Group in Baltimore.
Yesterday, Ford Motor Co., Toyota Motor Corp., Chrysler LLC and Nissan Motor Co. all reported U.S. sales drops of more than 30 percent, and General Motors Corp. said that sales were down 16 percent. The last two weeks of the month were especially grim for car dealers as stocks tumbled, Washington dickered and credit markets froze.
To be sure, the auto industry has been reeling all year, because of falling housing prices and record gas prices, which soured buyers on the light trucks and large cars that Detroit had depended on for profitability. Now, the credit crisis is making things worse, as buyers struggle to qualify for loans and automakers scale back leasing.
The stock-market roller coaster made buyers even more nervous. Stocks had a one-day loss, on paper, of $1 trillion Monday, for the first time in history. As the market fell, some luxury-vehicle buyers called Toyota dealers asking for refunds on deposits they had made, said Don Esmond, the senior vice president of auto operations for Toyota in the United States.
The past two weeks were "tantamount, really, to a natural disaster," said George Pipas, Ford's top sales analyst. Showroom traffic looked like it does around a big storm, or like it did in the weeks after the Sept. 11 attacks, he said.
"There's just scare in the air," said Kitty Van Bortel, who owns both a Ford dealership and a Subaru dealership in Rochester, N.Y.
"My opinion would be that sales are down because of the unknown, and that's always the worst. People really don't want to make a large purchase not knowing what exactly is going to happen."
Ray Ciccolo, the president of Village Automotive Group, which operates six dealerships in the Boston area, said that one lender has asked him to guarantee more loans, meaning that if the borrower doesn't pay a set portion of the loan, his company is on the hook for that amount. In the past, only borrowers with bad credit required a guarantee.
Mike Jackson, the chief executive of AutoNation Inc., the biggest U.S. dealership group, said that tougher credit requirements from banks and finance companies -- and limits on money to fund leases -- have cost the 250-store chain 20 percent of its sales volume so far this year.
"Our standards have tightened," said Todd Denbo, a lending-product manager at Wells Fargo & Co. "We want customers to come in, even though it's a difficult time, and sit down with a banker and find the right solution for them. It may not be the auto loan that's the right fit for the customer."
Even trade-ins of gas guzzlers for smaller cars are falling off.
"The first time gas went up, they would line up their trade-ins outside my door," said Jim Johnson, who manages a used Honda dealership in Richfield. "By now, they've adjusted their habits."
Reduced demand for trucks and SUVs means that customers who do trade them in for smaller cars sometimes get only half of book value, said Joel Jack, the general sales manager at a Honda dealership in Richfield, Minn.
For example, someone recently traded in a high-end 2003 Ford Expedition that would once have been worth $17,000, but its value has dropped to only $6,400.
"Managers really have to go out of their way to figure out what these vehicles are really worth," Jack said.
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