Consumer spending is slowing and the auto manufacturers are being hit hard this year. When money gets tight, the big ticket items are the first to get cut from the budget, and a new car is “the” big ticket item. Auto analysts are reporting that the U.S. vehicle market could sink to its lowest level in at least a decade in 2008.
Take a look at the reports yourself:
- Manheim Consulting, Auto Industry Factoids (PDF), March 2008.
- J.D. Power & Associates, U.S. New Light-Vehicle Sales in 2008 Forecasted to Reach Lowest Point in More Than a Decade.
- Edmunds.com Forecasts March Auto Sales: Auto Industry Suffering from Economic Woes.
It’s interesting how some in the media are attributing decreased auto sales to low consumer confidence and consumers’ fears about the economy. There are also news reports that many consumers are intentionally postponing auto purchases in anticipation that prices will fall or incentives improve soon.
I tend to disagree. I’d be willing to bet that consumer choices aren’t a major reason for decreasing auto sales. IMO, are large cause of lost sales is NOT intentional and most-likely caused by consumers’ being overextended, increased living expenses (food, gas, etc.), job losses, and tighter lending standards. Many consumers just don’t have the money to buy a new car or can’t qualify for a loan. The choice isn’t their’s to make.
Source: Non Sequitur, by Wiley Miller
My opinion is guided by a January Fitch Ratings report, In the Auto ABS Driver’s Seat that auto loans at least two months delinquent hit a 10-year high in January, signaling the continued spread of consumer weakness to beyond homes and credit cards.
According to that January report, Fitch doesn’t expect to see much relief in sight for auto ABS performance in both the prime and subprime sectors in the coming months. They forecast that current conditions in the economy along with a softer wholesale market will further pressure performance, despite this time of the year usually being a seasonally stronger period.
I tend to agree with this view. In April, all of my referenced reports will be updated for the first quarter of 2008, and I’m curious to see if the numbers are as bad as I expect. I’ll post those reports in the comments section to follow-up.
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