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Auto sales plunge as credit crunch hits
October 1, 2008 / 7:04 PM / 9 years ago

Auto sales plunge as credit crunch hits

<p>A long line of Ford trucks for sale are seen at a Ford dealership in Broomfield, Colorado July 23, 2008. REUTERS/Rick Wilking</p>

WASHINGTON (Reuters) - Major automakers reported plunging U.S. sales for September on Wednesday -- led by a 34 percent slide at Ford Motor Co -- as an escalating credit emergency slammed a slumping industry and raised new doubts about when the world’s largest auto market would hit bottom.

The downturn in auto sales for September coincided with a crisis on Wall Street and claimed even the auto industry’s better-performing brands.

Sales were down 24 percent at Honda Motor Co Ltd, 32 percent at Toyota Motor Corp and 37 percent at Nissan Motor Co Ltd.

U.S. industry sales leader General Motors Corp, which was more aggressive in discounting its vehicles, managed to keep its September sales decline to a relatively small 16 percent to take a larger share of a rapidly declining market.

“Consumers and businesses are in a very fragile place,” Ford sales chief Jim Farley said. “An already weak economy compounded by very tight credit conditions has created an atmosphere of caution.”

Chrysler LLC was also expected to post lower sales.

The bleak auto sales results represent an early reading on the recent economic impact of a credit crisis that has triggered a rapid consolidation in banking and ongoing government efforts at a rescue plan over the past month.

On an industry-wide basis, analysts had expected auto sales to drop to a 13.5 million annual rate in September, down from 16.2 million a year earlier and from August’s 13.7 million.

Earlier this year, a sharp rise in gasoline prices accelerated a shift in consumer demand toward more fuel-efficient cars and away from large trucks and SUVs.

But in recent months, auto industry executives and dealers have said the lack of credit for car shoppers has supplanted gas prices as a reason for lost sales.

Ford said customers were being forced to use more cash to close deals and said the credit-market uncertainty made it impossible to forecast when the industry would bottom out.

The political debate in late September in Washington over a still-pending bailout for the financial sector stopped car buyers in their tracks by injecting a new note of uncertainty, Ford’s chief sales analyst George Pipas said.

“It was tantamount to a natural disaster,” he said.

The drop in auto sales comes despite stepped-up discounting on 2008 models, including an employee-pricing offer from GM.

Edmunds.com, an industry tracking service for consumers, estimates that the discount on the average vehicle for September was $2,801, up 19 percent from a year earlier.

DEALERSHIPS AT THE BREAKING POINT

The weak September sales results underscore the risks for U.S. auto dealers, who are contending with dwindling sales, higher costs for carrying inventory and increasing difficulty finding lenders to make auto loans.

The top U.S. auto dealership group AutoNation Inc said on Tuesday that car loan approval rates had dropped to about 60 percent from 90 percent a year ago.

Advisory firm Grant Thornton said in a forecast released Wednesday that it expects the rate of failure among U.S. car dealerships to accelerate over the remainder of this year and into 2009.

If U.S. auto sales held flat or declined slightly from this year’s projected levels in 2009, about 3,800 dealerships would need to close, the study said. That would be about 18 percent of the total number of dealerships as of the end of 2007.

“An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines,” said Paul Melville, a partner with Grant Thornton.

Bill Heard Enterprises Inc, one of the biggest General Motors Chevrolet dealerships, filed for bankruptcy protection on Sunday, citing operating losses, decreased demand for vehicles and lack of credit.

At its peak, revenue for the Alabama-based dealership chain was about $2.5 billion per year, according to the bankruptcy filing.

Additional reporting by David Bailey and Poornima Gupta in Detroit, editing by Gerald E. McCormick

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