Hazardous Conditions for the Auto Industry
http://www.nytimes.com/2008/10/02/bu...=1&oref=slogin

DETROIT — For the first time since 1993, automakers sold fewer than a
million new cars and trucks in a single month in the United States, as a
reeling economy scared people away from showrooms in September, and many
eager buyers were unable to get loans.

With industry sales dropping 26.6 percent over all compared with a year
ago, car companies are likely to cut more production and jobs to
compensate for falling revenues.

The credit crisis contributed heavily to the steep decline — analysts
estimated that it cost the industry up to 100,000 vehicle sales in the
final week of the month, on top of lost sales because of high gas prices
and the shaky economy.

Auto executives said Wednesday that the industry faced more misery ahead
until a bailout package was passed in Washington.

“We feel it is critical,” said Michael C. DiGiovanni, chief sales
analyst for General Motors. “If it doesn’t happen, it’s going to set off
a continuing downward spiral in the economy.”

Nearly every automaker posted double-digit declines. Sales were down
34.5 percent at the Ford Motor Company, 32.8 percent at Chrysler, 32.3
percent at Toyota and 24 percent at Honda.

G.M. bucked the trend somewhat with only a 15.6 percent drop in sales.
*But it was helped by employee pricing deals offered to all consumers
and an increase in sales to rental car fleets.* [emphasis added]

Over all, the industry sold about 964,000 vehicles in September compared
with 1.31 million in the same month a year earlier, according to the
research firm Autodata. There were 24 selling days this September
compared with 25 a year ago.

“This is the worst point we have seen in 15 years,” said Jesse Toprak,
head of industry analysis for the automotive Web site Edmunds.com. “And
it is likely to be even worse in the month of October.”

Mr. Toprak said that sales for the entire year were projected to about
14 million vehicles, by far the lowest figure in more than a decade.

“There’s no question this is an automotive recession,” said Erich
Merkle, an analyst at the accounting and consulting firm Crowe Horwath
in Grand Rapids, Mich. “It’s going to take us a long time before we get
back to that 16 million mark.”

Automakers said that tighter lending practices by banks had prevented
countless consumers from getting financing deals for new vehicles.
Moreover, they say the paralysis in Washington on a bailout bill and the
startling failures of Wall Street investment banks have frightened away
even creditworthy consumers.

At Toyota, the year-to-year sales drop was the worst the Japanese
automaker has experienced in the United States in 20 years.

“There is a lack of consumer confidence,” said Donald V. Esmond, senior
vice president for Toyota’s North American sales operations. “They’ve
got their hand on their wallet, and they’re not spending their
disposable income.”

The drop-off in sales across the industry occurred despite a nearly 19
percent increase in incentives from a year earlier. The average
automaker incentive during the month was $2,801, compared with $2,357 in
September of 2007, according to Edmunds.com.

Automakers said there had been a drastic decline in dealership traffic
toward the end of the month, when the troubles on Wall Street caused a
full-blown economic crisis.

“During the last 10 days of the month it was extremely weak,” said
George Pipas, a market analyst at Ford. “It was tantamount, really, to a
natural disaster.”

Executives at the Detroit automakers declined to say whether they were
planning further production cuts in the fourth quarter to balance the
shrinking demand.

But analysts said further cuts and reorganization moves appeared inevitable.

“We believe we will see an increase in promotional activity to stimulate
demand, as well as a reduction in production volumes,” Mr. Toprak said.

Detroit has already cut tens of thousands of jobs since 2006. Many of
its assembly plants have been idled for weeks at a time this year to
reduce production of slow-selling pickup trucks and sport utility vehicles.

G.M., Ford and Chrysler are also burning through billions of dollars in
cash reserves to finance new products, even as their businesses falter.
G.M. lost $15.5 billion in its second quarter, and Ford lost $7.8 billion.

The credit squeeze is also hitting dealers hard. Ford, for example, is
increasing the cost of loans to dealers to pay for new-vehicle inventories.

Nearly 600 of the nation’s 20,770 franchised new-car dealerships have
closed their doors this year, according to the National Auto Dealers
Association.

And the view from the showroom floor is getting gloomier each day that
the financial crisis goes unresolved in Washington.

Michael Futrell, general manager of Champion Chevrolet in Tallahassee,
Fla., said car shoppers seemed overwhelmed by the weak economy, tight
credit, the Wall Street crisis and uncertainty surrounding the
presidential election.

“People want to buy, but they just don’t want to pull the trigger until
they know who’s going to be in office and what this economy is going to
do,” Mr. Futrell said. “What the consumer doesn’t understand is that
there’s probably not a better time to buy a car. The deals are out
there, but I think everybody’s so skeptical that they’re trying to hold
off.”

When gasoline prices hit $4 a gallon this year, consumers mostly backed
away from buying larger vehicles in favor of more fuel-efficient
passenger cars.

But vehicles of all sizes went begging in September — sales of light
trucks dropped 31 percent, while cars fell 21 percent, according to
Autodata.

“We don’t anticipate seeing recovery in the industry until we can get
some recovery in housing,” said Rebecca Lindland, an analyst with the
consulting firm Global Insight in Lexington, Mass. “The consumer has
gone from being nervous and uncertain to just downright scared.”

The steady slide in sales has left automakers wondering whether the
worst is yet to come.

“We are looking at a very fragile economy,” said Emily Kolinski-Morris,
Ford’s chief economist. “I don’t think anyone can say where the bottom
might be.”


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