New-car sales remain dismal in the still-struggling economy, but optimism within the industry is high for growing sales in the second half of the year and beyond.
The other side of that coin, however, is that great deals and bargains on new vehicles will continue.
As recently as 2006, new light-vehicle (passenger cars, pickup trucks and SUVs) sales totaled nearly 17 million units, and 2007 saw sales of nearly 16.6 million units. The projection for 2009 is less than 10 million units.
No doubt for franchised dealers sitting in nearly deserted showrooms, 2007 seems light-years behind us. In an industry rocked as hard as any by the current recession, sales are at their lowest in 27 years. Automotive News has reported June 2009 sales of cars and light trucks combined at 860,101. This is down 66,000 units from May and 329,417 from June a year ago.
Sales hopes dashed
Industry analysts were encouraged by May sales that pushed the Seasonally Adjusted Annual Rate, or SAAR, which is a projection of sales for the calendar year based on current sales trends, to 9.9 million units. That was the best year-end projection for any month so far in 2009. It had the industry believing that sales were improving and total sales for the year could exceed 10 million units. Instead, June’s numbers actually pushed the SAAR down to 9.7 million units. “It was supposed to start getting better in June,” says Paul Taylor, chief economist for the National Automobile Dealers Association, or NADA. “It was a month in which I expected the adjusted number would be 10.2 million, but it just didn’t happen.”
This drop in monthly sales was in the face of a slight improvement in retail sales and increasing consumer confidence. Taylor mentioned three factors that are responsible for June’s disappointing performance.
- Availability of credit.
- Concerns over the managed process for General Motors and Chrysler.
- Consumers delaying purchases to wait for the “cash for clunkers” program to kick in on July 24.
‘Cash for clunkers’
“Cash for clunkers” is a federal program — formally called the Consumer Assistance Recycle and Save Act of 2009 — which offers consumers vouchers up to $4,500 to entice them to trade in their gas-guzzling cars for new, more fuel-efficient models.
Consumer unease regarding the federal government’s oversight of Chrysler and GM and other uncertainties regarding their futures is keeping many shoppers away. Although the industry as a whole saw June sales slip 28 percent from the same month in 2008, GM was down 33 percent and Chrysler was down 42 percent. Ford, on the other hand, was down just 11 percent. “GM and Chrysler haven’t been able to overcome concern about the managed process of the government,” Taylor says.
The most troubling factor, according to Taylor, is the dearth of credit. “My concern is that with the June data,” he says, “the credit isn’t coming back as strongly as we thought. Credit availability remains an important factor in this marketplace. Consumer confidence is up, and if consumers can find the credit to take advantage of that confidence, we should see an improvement for the second half of the year. But we need the availability of credit. We don’t have a financial system in place. If demand in July were up to the level where we would see that 5 million extra units this year, the credit wouldn’t be available to support it.”
The credit crunch isn’t just being felt by consumers, but also by dealers who are struggling to finance their inventories, or floor plans. Many banks have discontinued floor-plan financing leaving dealers scrambling to secure the credit needed to buy vehicles from their respective manufacturers.
Continuing sluggish new-vehicle sales means consumers can get better deals in the showroom. Look for deeper discounts, heftier rebates and bargains on credit rates. For example, the redesigned Ford Taurus goes on sale late this summer with a $1,000 rebate, and an additional $500 back for taking delivery by Sept. 1. GM ran a zero percent finance rate promotion early in July during what it called a “72-Hour Sale.” It included all Pontiac models and other select GM products.
Marketing is becoming ever more creative as well. Through the end of August, Hyundai is offering to lock in the price of fuel at $1.49 per gallon for a full year (12,000 miles maximum) based on the EPA’s combined city/highway fuel economy of the Hyundai purchased. Suzuki has announced a three-month free-gas program on new 2009 SX4 sedan and crossover models purchased on or before Aug. 31. Moreover, if you buy versions with a manual transmission, they will give you an additional $2,000.
Other than the usual bloodletting you might expect when a manufacturer reorganizes as Chrysler and GM are doing, brand lineups remain virtually unchanged. Americans still like their big sedans, pickup trucks and SUVs. Crossover year-to-date sales are down 13.3 percent from last year, and pickups are off 25 percent. Taylor attributes some of this relative sales strength to the fact that the light truck segment took its lumps last summer when gas prices peaked at over $4 a gallon. Although last year’s spike in pump prices gave some pause to some potential big-vehicle purchasers, many of them didn’t go into smaller vehicles. Instead, they continue to wait on the sidelines to see if fuel prices are going to stabilize or increase. If fuel prices don’t take a big bounce up during the next six months, there could well be some pent-up demand that will play out late this year or in early 2010.
Taylor remains confident sales will exceed 10 million units this year. “If sales don’t get to 10 million this year,” he says, “it will indicate an economy that isn’t good for anybody. I am confident we will get above 10 million.”
What about 2010 and further into the future? “We will see 11 (million) to 12 million sales in 2010,” Taylor predicts. “It’s associated with an economy that’s coming back and should reflect the increase stimulus in government spending over the last 18 months. We are on our way back to 15 million units, but that’s several years away.”