Auto sales' skid less than feared

October 03, 2007|By Rick Popely | Rick Popely,CHICAGO TRIBUNE

CHICAGO -- Though automakers acknowledge that a slow housing market and tighter credit standards are hurting auto sales, the industry hasn't suffered the meltdown some analysts have predicted.

Auto sales fell 3 percent in September to 1.13 million vehicles, beating some expectations.

However, Ford Motor Co. tumbled 20 percent in September, compared with September 2006, and Toyota fell 4.4 percent. General Motors Corp. eked out a tiny increase despite a two-day strike, joining Honda and Nissan, which also rose.

Diane Swonk, chief economist of Mesirow Financial, says auto sales were not as bad as some feared for two reasons. First, consumers began putting the brakes on tapping home equity to buy vehicles about a year and a half ago, after home values peaked, diluting the impact. Second, automakers resorted to an old standby, zero-percent financing, to boost sales last month.

Though automakers didn't splurge on incentives - said overall incentives declined from August - zero-percent offers abounded on 2007 models last month as automakers sought to make room for 2008 models.

"When Detroit gives cars away, people are willing to buy," Swonk said.

Bob Schnorbus, chief economist of industry forecaster J.D. Power and Associates, noted that auto sales peaked in 2000, when the industry sold 17.4 million vehicles, long before the housing bubble burst. Sales are on track this year for about 16.2 million, down from nearly 16.6 million last year.

"Auto sales never were in the same kind of bubble like housing was," Schnorbus said, adding that the credit crunch has had little effect on new vehicles. "The auto industry isn't nearly as exposed to subprime lending as housing."

It has hurt some, though. Fewer consumers with incomes less than $75,000 can afford new vehicles because their adjustable-rate mortgages are resetting as energy and food prices rise, GM market analyst Paul Ballew said.

"There is clear evidence that economically sensitive customers are exiting the [new vehicle] market more than others," he said. "Households in that income group face some pretty significant head winds."

Ford economist Ellen Hughes-Cromwick points out that subprime borrowers are more likely to buy used vehicles than new ones.

"People do continue to demand transportation services though thick and thin in the economy," she added.

That's what led to September's mixed results.

GM posted its second straight month of higher sales, albeit a razor-thin gain of 949 vehicles, to 334,874, despite a two-day strike by the United Auto Workers before a tentative four-year contract was reached.

Though GM said it lost production of 30,000 vehicles in the strike, Ballew said it has not raised its fourth-quarter production forecast from 1 million vehicles to make that up.

Ford sold 189,000 vehicles in September, with cars falling 39 percent and trucks 9 percent, and Chrysler LLC fell 5.4 percent to 159,799.

For Ford, it was the 11th straight monthly decline, putting calendar year sales at 1.97 million, down 13 percent. It also allowed Toyota to widen the gap between it and Ford. Toyota moved into second place, behind GM, in August.

Rick Popely writes for the Chicago Tribune.

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