Autoremarketing reports that not only were November’s results the 11th straight monthly drop this year, they were also the steepest thus far. In even better news ( at least for the makers of your favorite brand of anti-depressants), the Seasonally Adjusted Annual Rate (SAAR) of sales shows that things are even worse than they initially appear. “When December’s numbers are extrapolated, fourth-quarter SAAR is expected to be 10.4 million units,” intones Autoremarketing, “which would be 35.8 percent weaker than the fourth quarter of 2007 and the heaviest drop-off in 4Q SAAR since 1967.” And this, despite widespread attempts by OEMs to redline their sales with cash on the hood. Average cash rebates in November were $3,392, up 71 percent from a year ago and at their highest level since 2003. Incidentally (or not) 2003 was also the last time we saw turn rates as slow as this month. Vehicles sat an avaerage of 83 days on the lot in November, up from 73 days in October and 58 days in November of last year. Market stratification continues apace, as “compact basic” and “compact conventional” models sat only 35 and 44 days respectively, while anything with the name “utility” in its category sat for at least 100 days on average. Finally, “negative equity trades (as a percent of all trades) dropped to 25.48 percent in November, the lowest level for this metric since the start of 2003 as owners with upside-down vehicles either could not obtain a loan or stayed out of the market altogether.” Bail that.
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I’ve spoken to a number of dealers recently and they all report slower but still steady floor traffic. The incentives may be driving some more shoppers but then the lack of available financing is limiting sales.
I wonder if there is a way to better understand how much of the sales drop is due to a simple lack of demand (expected due to the economy, lack of consumer confidence, and the talk of impending Detroit bankruptcy) and how much is due directly to unavailable financing? I would guess that at least half of the fall is due to credit availability.
I’ll be in the market in a couple of months for another car (a new addition to the family and the end of a lease conspire to put me back in the market). I haven’t looked recently, but do suspect that I may not be able to finance a new car and will be looking for an inexpensive used car for which I can pay cash.
The deals on new cars are downright amazing but unless banks start lending again the marketing is falling on barren ground.
steve:
As one who works for a financial institution, I can say that the banks are ready to lend…TO CREDITWORTHY BORROWERS.
If you have a decent FICO score (above 680) and a Debt-To-Income below 40-43%, you can get loans. if you’re putting money down, even better (as we say in lending, cash=commitment).
The biggest problem right now is that so many people financed on 72 and 84 month terms that they’re still upside down after 4 (or more) years. Add to that the decline in values, especially for SUV’s, and the whammy gets worse. Banks are backing away from rolling over negative equity, as this is a sure sign of higher risk. When I’m taking a $25K haircut on a repo Range Rover, it gets my attention.
Right now, banks are desperate for quality loans to put on the books. The credit crunch is mainly the return of actual loan underwriting. If you can afford the car, you can get financing.
GM and Chrysler are just mad at their corporate masters at Cerberus who have shut off the “everyone with a pulse gets financed” loans.
Zarba,
The comments I’ve been hearing from dealers (again, this is heresay, I have no statistics) indicated that even people who appeared creditworthy are being turned down. I certainly understand the issue of poor credit… of course that’s made worse due to millions of people being out of work because the feeding frenzy by bankers suddenly and painfully came to an end.
As soon as the leaders of the financial institutions return the bonuses they were paid from the fraudulent profits on “everyone with a pulse gets financed” loans over the past few years then we’ll stop blaming your brethren from swinging the pendulum too far in the other direction.
I’m glad you are NOW deciding to put some controls on your business practices.
I think the issues with GMAC being controlled by Cerberus are definitely getting serious for GM. Not only did they cede their ability to balance car sales with financing losses, but I also hear that many dealers are being forced out of business by GMAC shutting off their floor plan credit lines. At least this explains how GM plans to shut off half of their dealer network without expending any cash.
In spite of the talk of an enormous surplus of new cars, why are there no astonishing deals on new cars in my newspaper?
I don’t think deals are amazing. I think deals are fake, at least on cars. I don’t really think they are getting the message.
Or maybe only part of the message. They recognize that reducing price should help sales. So they are advertising sales like crazy. With trucks, there are deals. With cars, the incentives don’t seem much different from last year and the year before.
They need to make the step beyond talking about sales and really hold sales. Then they’ll get a response.
The short answer is cars still cost too much. Financing, or lack thereof, is another way of saying that people cannot afford cars and are unable to service the debt. Because they cost too much.
A huge unit surplus in a real economy would be followed by price reduction. But why bother- they don’t have to sell cars. All they need to do is sit still and let taxpayer money flood in.
ronin: “They need to make the step beyond talking about sales and really hold sales. Then they’ll get a response. The short answer is cars still cost too much.”
Agree.
Moreover, I think the incentives and promotions aren’t very effective because the car biz has long had so much flim-flam that buyers doubt cars can actually be bought for advertised prices.
I wonder if the deflation spiral may have started, people putting off their possible car purchase on the basis that there may be a better deal next week/month/year.