Next victim of mortgage mess: Auto sales
NEW YORK (CNNMoney.com) -- Already-battered U.S. auto sales could be the
next victim of the problems with mortgages, declining home and stock
prices as potential car buyers delay purchases due to uncertainty.
Industrywide U.S. auto sales in August could be off 10 percent from a
year ago, according to an early read from sales tracker Edmunds.com.
That follows July sales that were 19 percent below year-earlier levels.
Jesse Toprak, executive director of industry analysis for Edmunds.com,
said that the downturn in home values and credit issues that were seen
in the July numbers could be an even bigger factor this month.
"I think the issue is becoming more pronounced," he said.
Sales weren't just weak at domestic automakers, such as General Motors
(Charts, Fortune 500), Ford Motor (Charts, Fortune 500) and Chrysler
Group. Year-over-year sales fell in July at Toyota Motor (Charts) and
Honda Motor (Charts) as well. Many forecasters are cutting full-year
auto sales targets in the face of these weak summer sales. And some
experts say the turmoil in housing could throw even more dirt in the gears.
CNW Research, which specializes in surveys of car buyers, found in its
latest reading that 13.6 percent of the potential market's customers
were canceling or postponing plans to make a new-vehicle acquisition any
time soon, up from 10.1 percent last year.
And of those postponing or canceling plans, home-related issues jumped
to the No. 1 reason, cited by 17.6 percent of those staying away from
dealers' showrooms, with nearly 11 percent of that group citing a
decline in their home equity and another 6 percent citing an increase in
their monthly home payment.
Of those postponing purchases, 10.7 percent cited problems with credit
scores, as some sources of car loans are tightening lending standards.
Gas prices are a distant third, cited by less than 5 percent of those
"We're probably going to see some pretty bad [auto sales] numbers for
the rest of the year," said Art Spinella, president of CNW. "To put it
simply, housing is now the major hurdle to new car purchases. The next
three to four months are not going to be much better if it's better at
all. People are not interested in buying a new vehicle."
Only two years ago, the CNW survey found just 2.3 percent citing
home-related issues as a reason to postpone a car purchase, while 5
percent cited credit score problems and about 3 percent cited gas prices.
Automakers, led by GM, are upping cash-back offers and other inducements
to try to breathe life into sales in the face of headlines about home
foreclosures and market meltdowns.
GM spokesman John McDonald said that GM isn't seeing any sharp drop-off
in sales it can trace to the current mortgage and housing slowdown.
"It is one of a number of headwinds," he said. "There's fuel prices,
there's interest rates and there's housing prices. But we're not seeing
anything new that we've not been talking about for more than a year."
But one auto industry executive, who spoke on condition that his name
not be used, said that the higher incentive spending by automakers,
particularly on GM pickups, may mask some of the bite that housing is
putting on sales.
"The home was not only a source of financing for some car purchases, it
contributes to a positive feeling psychologically," said the executive.
"That led to a confident outlook, a view that 'I can go ahead and spend
from paycheck to paycheck and buy new cars when I want to because the
value of my home and portfolio have gone up.'
"It's silliness to say the credit crunch doesn't matter," said the
executive. "If the final sales numbers for August have any strength, it
will be because of incentives."
Experts in the field say that car purchases are one of the first items
that consumers can and will put off if they are nervous about their own
financial outlook, long before they'll cut back on eating out or other
Bob Schnorbus, chief economist for auto research firm J.D. Power &
Associates, said that the August sales probably won't tell the full
story about the drag that the housing turmoil is causing for auto sales.
"I wouldn't expect it to have that quick impact; I would expect it to be
more of a drag throughout the rest of this year than a plummet in
August," he said.
And Schnorbus said that while consumers may keep making other types of
purchases, even as they pull back from buying new cars and trucks, the
slowdown could spread to other types of spending in the future if the
market does not improve.
"A new car is one of the more postponable purchases that people make,"
said Schnorbus. "That new vehicle purchase could be a good leading
indicator if consumers are going to cut back. Over the next few months,
we could be getting some very interesting signals."