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Credit Crunch Slowing Domestic Auto Sales

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August 30, 2007 by   Leave a Comment

Just when the U.S. automotive sector looked to be getting its legs underneath it after a years-long slump, another stumbling block has come along to knock it off kilter — the credit crunch.
MSNBC reported that the ongoing pain in the housing sector — including higher monthly payments for some owners and declining home values for others — is persuading many Americans that buying a car is not a good idea right now, according to market research company CNW Marketing Research.
Recent polling by the company shows that nearly 18% of people in the market for a car or a truck are delaying their purchases because of home-related issues, up from 9% in 2006.
Other data show consumers may be turning their attention to used cars instead. According to automotive information website Edmunds.com, online interest in used cars is up 24% this year over last year, while interest in luxury cars is down 19% and interest in economy cars (typically small, inexpensive models) is up 18% since December.
Adding to the lack of enthusiasm for new cars is the fact that automakers are not offering the same enticing incentives as in years past. These incentives, whether rebates or zero-percent financing options, are designed to lure car buyers into automotive showrooms. But auto deals are not as sweet as they were in recent years, when automakers were on a stronger financial footing said George Magliano, director of automotive industry research for the Americas at Global Insight.
“Manufacturers are tightening up on this,” he told CNBC. “Fundamentally, we think the consumer has been hit hard by the declining housing market, and also by higher energy prices and a slowdown in employment. So it’s not just the short-run impact of the credit crunch that’s having an impact here.”
Certainly, automakers are feeling the pinch. General Motors said last week that it has cut production at six plants that make large sport-utility vehicles and pickups, citing fuel prices, market competition and the impact of the struggling housing market.
Ford’s CEO Alan Mulally went a step further, becoming the latest high-profile executive to suggest that the Federal Reserve should cut interest rates. Mulally said volatility in global credit markets was a “big headwind” to the automaker’s plan to turn around its operations, according to a report in the Financial Times.

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