Spinning Their Wheels

Auto dealers are offering sleep discounts, but customers are hesitant -- or unable -- to buy

November 09, 2008|By Andrea K. Walker | Andrea K. Walker,andrea.walker@baltsun.com

If your clunker of a car is about to give out, you'll probably be able to get a good deal on a new one because of the miserable economy.

The reeling automotive industry is suffering from its worst sales in nearly 20 years. Car dealers are desperate for shoppers. And auto companies from Detroit to Tokyo are offering steep discounts and incentives to combat the slump.

But consumers, worried about the turbulent economy, are holding on to their older vehicles longer. And even if they're interested in buying, the recent credit crunch has made it more difficult to secure car loans.

Toyota and Ford are offering 0 percent financing and rebates worth several thousand dollars to lure people into showrooms. At used-car dealer Easterns Automotive Group, which has about a dozen locations in Maryland and Virginia, shoppers can nab a Cadillac Escalade for $10,000 cheaper than six months ago. General Motors, which recently ended a program where buyers could buy cars at employee discounts, launched a new campaign to tell consumers that loans are still available. The deals are expected to get even better as the year progresses and dealers make room for 2009 models.

"It's a supply-and-demand issue right now," said Peter Kitzmiller, president of the Maryland Automobile Dealers Association. "We don't have a large supply of customers right now, and there are a lot of vehicles."

Car sales began to slow this year as a result of the souring housing market and rising energy and food prices, which caused shoppers to cut back on discretionary spending. The problems escalated during the past month as Congress was forced to pass a bill to rescue the nation's failing financial institutions. While the credit crunch appears to be softening now, the economy continues to suffer from weak corporate earnings, rising job layoffs and stock market volatility.

Car dealers are facing shoppers who are scared to make a large financial commitment given their dwindling investments.

Loans also are difficult to secure. GMAC, the financing arm for General Motors, recently said it wouldn't give loans to people with a credit score lower than 700. That excludes 42 percent of consumers, analysts said.

But several car companies insist that consumers can get loans if they want them. And many dealers have launched campaigns to persuade buyers not to give up before trying.

GM's advertising campaign is designed to let people know that financing options are available. The carmaker set up a dealer database to help locate banks and other lenders that will make loans to customers with varying credit histories.

Consumers are keeping their vehicles an average of four months longer this year than in 2007. The National Automobile Dealers Association has said it expects 700 dealerships to close because of the crisis. There are about 20,000 dealerships in the country.

The car industry is expected to sell 10.8 million new vehicles by the end of the year, 2 million less than last year, according to research firm J.D. Power and Associates. Car sales in Maryland are on track to decline 10 percent this year.

Chrysler, Ford and GM announced more job cuts to address the slowdown, which for some automakers is the worst since 1975. Chrysler said it would close by the end of the year its Delaware plant just over the Maryland line, where 1,000 workers make Dodge Durango and Chrysler Aspen sport utility vehicles. GM, which said Friday that it could run out of cash next year and that it would cut 3,600 workers indefinitely after reporting major losses for the quarter, also is trimming some worker benefits. Ford said it was slashing 2,260 jobs after it also announced large quarterly losses Friday.

Sales at Antwerpen Chevrolet, Dodge & Kia on Liberty Road in Randallstown are down about 35 percent this year. Gary Dowling, the dealership's general sales manager, said customers still want to buy, but several banks the dealership once worked with are not as willing to make loans as they had been in the past.

"We have customers who want cars, but we don't have banks who want to give them loans," Dowling said.

Dowling said the dealership has been offering manufacturing rebates and discounts in hopes that a smaller loan will help customers secure bank financing. He said customers could save as much as $10,000 on many models.

Bernadette Page, a supervisor at a radiology company, went to Antwerpen after totaling her car in an accident. She bought a 2008 Dodge Caliber for $16,000, thanks to several thousand dollars' worth of rebates and discounts. The car can sell for as much as $23,000.

"I got a good deal," said the 40-year-old Randallstown resident. "They did everything they could to get me in a car that fit my financial situation."

Jessica Caldwell, manager of pricing and industry analysis at information Web site Edmunds.com, said that people without good credit scores are also being asked for larger down payments. Nationwide, down payments have hit a record average high of $3,000, she said.

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