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Analysts had already predicted that the credit crisis would take a bite out of auto loans -- and, therefore, out of auto sales. On Wednesday, we learned just how bad things are.
Americans bought 964,873 vehicles last month, the first time in 15 years that monthly U.S. sales fell below 1 million.
Ford Motor (F, news, msgs) reported a whopping 33.8% decline from last September, far worse than the expected 22% decline.
General Motors (GM, news, msgs) reported a 15.6% decline in September sales, better than analysts' expectations for a 26% drop. And Chrysler, which is majority-owned by private-equity firm Cerberus Capital Management, reported a 33% drop.
"An already weak economy compounded by very tight credit conditions has created an atmosphere of caution," Jim Farley, Ford's worldwide-marketing chief, said in a statement Wednesday. "Even if you have good credit, there's a reluctance to pull the trigger on a big-ticket item" like a car.
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Ford said the dismal sales were "tantamount . . . to a natural disaster."
The automaker, which is celebrating the 100th anniversary of its first Model T, had 60% of the global auto market in 1924, according to John Wolkonowicz, auto analyst at Global Insight. In the first half of 2008, Ford was fourth in worldwide sales.
Sales of Ford's flagship F-series pickups, normally the best-selling vehicles in the United States, were down nearly 42% from a year ago, while sport-utility-vehicle sales tanked 57% last month.
And the problems weren't restricted to U.S. manufacturers: Japanese automaker Toyota Motor (TM, news, msgs) reported a 32.3% decline in sales.
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"February 1993 was the last time that fewer than 1 million new vehicles were sold in a month, and we're coming remarkably close to that volume again," Edmunds.com analyst Jesse Toprak told MarketWatch.com.
U.S. annual sales reached a record 17.4 million in 2000 and have averaged 16.8 million this decade.
Despite the worrisome trend, neither Ford nor General Motors are in danger of failing, Wolkonowicz said.
"They'll survive. I think what we're seeing now is a short-term reaction to what I hope is a short-term problem," the analyst said. "We have to shore up the financial markets. If we do that, if credit loosens up, if people regain confidence, t hen sales will start to pick up again. As the economy picks up, things should get better."
Car dealerships going under
Meanwhile, separate report out Wednesday showed the industry fallout: Nearly one in every five car dealerships in the U.S. will close this fall, consulting firm Grant Thornton said."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 at Grant Thornton. "In addition, the domestic automakers who badly need retail consolidation are not spending much of their scarce capital on the problem, because the economy is doing it for them."
An estimated 3,800 auto dealers will go out of business in coming months, Melville said, up from a previous estimate of 2,700.
Bill Heard Enterprises, once the No. 11 U.S. dealership and the country's biggest Chevrolet dealer, filed for bankruptcy protection last week, closing 14 dealerships in Alabama, Florida, Georgia, Nevada, Tennessee and Texas. It also laid off most of its 3,200 employees.
"The declining automobile market, the high price of gasoline and its effects on sales of the dealership's core products, such as heavy trucks and SUVs, and the difficult financing conditions the automobile industry as a whole has faced because of the subprime lending industry collapse all contributed to the decision to close the facilities," the dealer -- once known as "Mr. Big Volume" -- said on its Web site.
| Automaker | Sept. 08 | Sept. 07 | Change | Automaker | Sept. 08 | Sept. 07 | Change |
|---|---|---|---|---|---|---|---|
General Motors | 282,806 | 334,974 | -15.6% | BMW | 18,583 | 24,968 | -25.6% |
Toyota/Lexus | 144,260 | 213,042 | -32.3% | Mazda | 16,169 | 25,098 | -35.6% |
Ford | 116,301 | 175,361 | -33.7% | Subaru | 14,491 | 16,457 | -11.9% |
Chrysler | 107,349 | 159,799 | -32.8% | Mitsubishi | 7,378 | 12,102 | -39.0% |
Honda/Acura | 96,626 | 127,200 | -24.0% | Suzuki | 4,083 | 7,653 | -46.6% |
Nissan/Infiniti | 59,565 | 94,269 | -36.8% | Volvo | 4,054 | 8,408 | -51.8% |
Hyundai/Kia | 42,148 | 57,301 | -26.4% | Porsche | 1,458 | 2,641 | -44.8% |
VW | 24,504 | 27,601 | -11.2% | Isuzu | 258 | 565 | -54.3% |
Mercedes-Benz | 20,582 | 22,481 | -8.4% | Industry total | 956,160 | 1,315,402 | -27.3% |
Automakers have been slammed by the credit crunch, as the tightened credit markets have prevented many people from securing car loans.
Dealers are facing a slowdown in new-car sales, along with weak used-car sales and a decline in financing profits, Melville said.
The approval rate for auto loans has fallen this year to 63% of applications from nearly 83% last year, data from CNW Marketing Research show. The number of institutions that a potential buyer shopped before being approved rose in the first three quarters as well -- up to 3.2 for prime loans from 1.8 last year and 7.9 for subprime loans from 4.4 last year.
On Tuesday, President Bush approved a $25 billion loan package designed to help U.S. automakers convert to more fuel-efficient vehicles. The Energy Department will have 60 days to set regulations that will determine which automakers can get loans and when.
But don't expect that to ease the pain at dealerships.
"Significant consolidation is necessary, especially among Ford, General Motors and Chrysler retailers, because U.S. sales already have declined more than 1 million units this year," Melville said. "The Detroit Three account for more than 85% of the total decline, and their sales per dealer were already well below the industry average."
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