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Car dealers expecting credit crunch fallout
By Kathleen Dayton
Staff Writer
It’s that time of year when car dealers are blasting year-end bargains in hopes of making room for new inventory and picking up business in what typically is a slower season for auto sales.
Most of them had better make those deals extra sweet.
This year, some analysts are predicting that the credit crunch affecting home sales could also mean some bad karma for the auto industry.
“When their houses lose real value, consumers are not in the best mood to go buy a new car,” said Jesse Toprak, executive director of industry analysis for consumer Web site Edmunds.com.
Even consumers who might not be caught in the subprime mortgage crisis are being affected by what Toprak calls “psychological postponement,” he said.
“Only a small percentage of consumers are impacted by the housing crunch directly, but many others are uncertain about making a vehicle purchase at this time, and they’re in a wait-and-see mode,” Toprak said. “Consumers’ ability to purchase a vehicle is not necessarily any less than last year, but what is very different is the consumer psychology.”
Edmunds.com expects U.S. auto sales volume for 2007 to be 16.1 million and is predicting no more than 15.9 million for 2008, a 1% decline.
Houston-based Plunkett Research Ltd. reported that the 2007 U.S. auto market is down to 15.9 million from 16.5 million in 2006, a fall of 3.6%.
“Consumer confidence is down for the past couple of months and consumers are concerned about finances in general,” said company Chief Executive Jack Plunkett. “Consumers don’t feel as wealthy as they did six months ago or in December of last year.”
Aside from falling home sales, high gas prices are also contributing to consumer woes. The party seems to be over for sales of large SUVs, Plunkett reported, with auto manufacturers Cadillac, Chevrolet, and Hummer all offering increased sales incentives.
“For awhile we thought high gas prices were a spike. Now we know they’re a lifetime reality,” Plunkett said.
Rod Runyon, assistant professor in the department of retailing at the University of South Carolina, said there is some validity in the concern that the mortgage market is going to affect auto sales.
“If it’s not happening right now, we will probably see it in a few months,” Runyon said. “It would make sense to me that people who are in subprime home loans or who bought more house than they could afford are probably not going out to buy a $45,000 SUV. That’s almost another house payment. That’s got to severely affect the auto industry from a psychological standpoint.”
Local dealers have mixed opinions on the auto sales climate. Some report increased sales. Some are seeing declines, and others say not much has changed.
“Chrysler sales are down, but our sales in general are about the same. They haven’t changed much at all,” said Kenny Ford, general manager of Hoover Chrysler Jeep in Summerville.
Steve Bilton, general manager of Bilton Ford in St. George, said sales have gradually declined since the Sept. 11 terrorist attacks six years ago.
“I think we were down way before the housing industry got there,” Bilton said. “I think a lot of people out there have used the equity in their homes to buy cars…and I think it’s coming back to haunt them.”
Sales also have slowed at Jones Ford, a North Charleston dealership.
“Our crystal ball is a little cloudy right now,” General Manager David Walters said. “Frankly, things have been a little slower for some time. Whether it’s because of the credit crunch or not, it’s hard to say.
David Yarborough, general manager of Lexus of Charleston, said the clientele at his dealership in general would not be affected by the subprime credit crunch. Still, the downturn in the housing market is affecting the buying habits of those in the industry.
“Real estate agents and mortgage brokers are an important part of our business and a lot of those folks are sitting on the sidelines right now,” Yarborough said. “The good news is, when they come back, they’ll come back strong.”
Kathleen Dayton is a staff writer for the Business Journal. E-mail her at kdayton@setcommedia.com.
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