Thursday, March 27, 2008
Unsure about home values, consumers often delay large purchases such as vehicles.
SOUTHFIELD, Mich. (AP) — Just like everyone else in Southeast Michigan, Desta Woudenh is worried about declining home values, high gas prices and the economic slowdown.
But the computer software maintenance specialist still spent much of his Good Friday holiday inside the showroom at Tamaroff Honda, sitting in a deluxe new Accord and talking with a salesman.
No matter what happens to the economy, Woudenh, 41, needs to replace his 1995 Honda Civic with 180,000 miles on it.
“I pushed it as much as I can,” he said in the showroom of the dealership in the Detroit suburb of Southfield. “I need a good, dependable car.”
Automakers are hoping that there are more people like Woudenh out there as they face what could be one of the toughest months in one of the toughest sales years in more than a decade.
Industry analysts are predicting that U.S. auto sales in March will be worse than the same month last year. Just how bad depends on the analyst.
“We’re seeing the same negative forces that had an impact on consumer demand in the first couple of months of ’08,” said Jesse Toprak, chief industry analyst for the auto information site Edmunds.com.
He predicts that when automakers report their U.S. sales results for March on Tuesday, the U.S. market will be down 12 percent when compared with March 2007. J.D. Power and Associates reported that for the first half of March, information from dealers showed nearly a 22 percent decline from the same period last year, although the company counted two more selling days in the first half of March 2007.
In uncertain times, Toprak said, people postpone large purchases until they know what will happen to their home values. A run-up in gasoline prices to $3.50 per gallon or more didn’t help, either, and some analysts are predicting that tighter auto loan standards will crimp sales as well.
“We are in a very challenging environment,” said George Pipas, Ford Motor Co.’s top sales analyst, although he cautions that sales generally are slower during the first half of the month than in the second.
Pipas wouldn’t give specifics, but says Ford and most other automakers will see lower sales than in March of last year.
The Detroit Three, once again, are likely to be hit harder than their Asian competitors as the market continues its shift away from trucks and sport utility vehicles to more fuel efficient small cars and crossover vehicles, industry analysts say.
“The bottom line impact on domestics is negative,” Toprak said. “They make most of their money on SUVs and trucks, and those segments have been suffering quite a bit.”
At Crippen Buick-Pontiac-GMC-Mazda-Volvo in suburban Lansing, the foreign brands fared better than the GM brands in the first three weeks of the month when compared with the same time last year, said owner Jeff Crippen. But Buick, Pontiac and GMC still are the biggest chunk of the business.
He was hoping for a rebound in the final week of the month.
Lehman Bros. analyst Brian Johnson, in a note to investors, predicted continued weakness in auto sales this year due in large part to tighter lending standards.
“We believe that even modestly rising delinquencies in auto lending [as well as broader consumer credit] are leading to tightened credit standards and pressure on sales,” he wrote.
But Crippen said that’s not happening in the Lansing area.
“We haven’t seen the banks tightening on their end, nor have we seen a decrease in our customers’ overall credit scores,” he said.
Pipas says demand could increase later in the year because of lower interest rates and because the U.S. auto fleet is getting old. The average car in the U.S. is 9 years old, while the average truck is seven, Pipas said.
“Clearly there are people that need to replace a product,” he said.
Edmunds’ Toprak said automakers likely will raise incentives as the year progresses in an effort to boost slackening demand, so deals could get sweeter.
Already, incentive spending per vehicle is $2,469 so far this year, inching closer to the record of $2,603 set in 2004.
“Now that demand is so low, they need some tools to bring people back in the showrooms. They have no choice but to be more generous,” he said. “It’s very likely that by the time we reach summer it will reach that record number.”
Woudenh said he’ll be among the shoppers looking for incentives and other deals. He plans to look at Asian automakers as well as the Detroit Three, especially GM, which he says is building better cars now.
Gas prices will weigh heavily on his purchase. Even though he’s planning to get a larger car than his Civic to handle his growing children, he still will get a four-cylinder engine to get better gas mileage, he said.