Bad credit hurting sales more than fuel prices
The auto industry is in a bad sales slump, and while trucks and SUVs are being hurt particularly by fuel prices, the rest of the market has an even bigger problem. The tight credit market is making it much harder for dealers to sell you transportation, and the problem isn't relegated to just those with poor credit. Banks want higher cash-to-debt ratios, larger down payments, and then they're still charging higher interest rates on top of all that. GM's Mark LaNeve estimates his company is losing between 10,000 and 12,000 sales per month due to the credit crunch, which is close to a full point of market share.
Chrysler dealers are likely struggling even more, as the Pentastar recently removed company-financed leasing as a fall back option for those who cannot afford to buy. Chrysler's sales have been down 34% this year through August, and leasing went from 23.5% of the business to just 2%. With the latest rash of bad news hitting the banking industry in the U.S., we don't expect this trend to reverse itself any time soon.
[Source: Automotive News, sub. req'd, photo by BookMama | CC 2.0]
Reader Comments (Page 1 of 2)
Menice 11:27AM (9/15/2008)
chevy dealer near me has "$7,000. off" on the windshileds in the lot.....got a buddy at a truck dealership un north- he's like the service manager...or was, just lost his job.
economy seems bleaker each day.hope we can all look back at this next year from a place far better then where we're at now.
Reply
No Welfare for GM 1:41PM (9/15/2008)
But doesn't this story simply mean that a company that has good small, and cheap cars will come out on top. It seems to me that Cruze better be a HUGE hit for GM.
I personally always thought that Cruze is far more important than Volt, now this story simply solidified my opinion. This also means that Corolla and Civic are about to become even larger (in terms of sales) they have the 1 & 2 spots locked, who will be #3 that is the question, Focus, no way, Cruze, GM is yet to show that they can make a good small car, i guess Huyindai has a chance to make it big right now.
That One Person 3:56PM (9/15/2008)
Welfare...I have to agree on the Cruze. But I doubt it will be a huge seller like some people say it will be....unless it's priced and equipped right from the start. GM definitely doesn't have a good past as far as small cars go...
As for the Focus. It will do well. Surprisingly, Focus sales skyrocketed after the 08 came out. And we are supposed to be getting a new Focus within the next couple years. So you never know. The Focus isn't a bad car. Old? Yes. Good? Definitely.
But it seems small cars and lightly used vehicles will most likely be the future. Heck, I know a lot of people who were looking at cars and decided to downgrade either to a base model or whatever is sold below it.
Oh and as for gas prices, I paid $4.19 a couple days ago. Shockingly, the same station was selling E85 for $3.02! Off topic but thought I would share that.
n8new 11:28AM (9/15/2008)
CORRECTION: Chrysler's sales are down 24.4% for the year through August '08 compared to the same period in '07. Chrysler's sales are down 34.8% for the month of August '08 compared to the month of August '07.
"Chrysler's sales have been down 34% this year through August" is incorrect.
Reply
Dave T. 3:46PM (9/15/2008)
the 24% for the year is correct.
WetheSheeple 11:36AM (9/15/2008)
You can thank Alan Greenspan for most of the financial mess this country is in right now. With Lehman Brothers filing bankruptcy and other large financial institutions in bad shape, we are heading for another depression soon. When you have a private banking cartel (Federal Reserve) that has the power to create money out of thin air and charge the government interest on it, it is a recipe for disaster. The more money it creates to lend to Congress because Congress spends more than what they take in revenues, the more the dollar is worthless. Now our dollar is worth about .04 cents.
The only way we can get out of this mess, is to abolish the unconstitutional Federal Reserve and go back to REAL constitutional money (gold and silver) just like the constitution states. We never were supposed to have paper money. But for now, we will all continue to be serfs to the bankers who control our lives.
Reply
Swede 11:38AM (9/15/2008)
Yeah or we could start paying eachothers in pigs.
Blar 12:07PM (9/15/2008)
Interesting you mention serfs, because back when the only currency was gold, silver or pigs, I don't think the serfs were that much better off.
LeRobert 12:31PM (9/15/2008)
Might I suggest a course in the Theory of Money? The problem isn't with paper money, it's with the US government spending more than what it's taking in; and the American household is spending more than what it's taking in, as well.
Paul 12:43PM (9/15/2008)
Greenspan is NOT the (only) criminal here.
This is a sum of greedy Investors and Consumers.
WetheSheeple 12:48PM (9/15/2008)
"Might I suggest a course in the Theory of Money? The problem isn't with paper money, it's with the US government spending more than what it's taking in; and the American household is spending more than what it's taking in, as well."
I've studied Money theory for quite a few years. Here is a good book to read
"The Theory of Money and Credit"
by Ludwig von Mises or you can read Kotlikoff, "Is the United States Bankrupt?" in the July/August edition of the Federal Reserve Bank of St. Louis Bulletin (available on the internet)
Yes, with the US spending more than it takes in, how do you think Congress/Federal Gov't gets the money to continue? It prints it (or borrows from China, etc). So by printing and borrowing more money it decreases the dollar which makes prices go up, what we call inflation. That's why we have this thing called the National debt growing, and growing and growing.
Check out the video, Fiat Empire here:
http://video.google.com/videoplay?docid=5232639329002339531
It will explain what I'm talking about as far as paper currency and why the Federal Reserve violates the Constitution.
Rocketboy 12:49PM (9/15/2008)
Well, besides the swipe at Palin, pigs wouldn't work for our Jewish friends. I say we start trading in non GM wheat, and other grains. That's the only way to do things.
(If you did not note the sarcasm, please do not respond. If you did note the sarcasm, please do not respond saying only that.)
Rick 7:32PM (9/15/2008)
Alan Greenspan?! WTF? haha, your Bush guy replacing Greenspan killed the economy.
WetheSheeple 9:54PM (9/15/2008)
"Alan Greenspan?! WTF? haha, your Bush guy replacing Greenspan killed the economy."
What the hell are you talking about? You think Bernanke is the one who caused the housing bubble? What is happening with the mortage meltdown today goes back to the early 90's my friend. Greenspan by many economists is the main blame for the meltdown.
And Bush nor any president has any say or clout as to who gets elected to the board of directors of the Federal Reserve. It just has the appearance of it. The board of directors of the Federal Reserve System is chosen by the president from a list prepared BY THE BANKERS THEMSELVES.
Swede 11:37AM (9/15/2008)
"Those who cannot afford to buy" should not be leasing a new vehicle either. If your economy is tight, buy a cheap car.
Reply
LMBVette 11:53AM (9/15/2008)
Exactly.
If you can't qualify for a loan....you shouldn't be buying the car in the first place.
This is the problem with today's society. Everyone wants the best of this and that and they use credit to buy it. Bad idea.
If you can't afford to pay for something in cash (other than a house or car) you should not be buying it.
40 years ago housing costs were only 1/4 of a person's pay. Today...it's over 1/3rd.
Car prices have increased from an average of 20k 10 years ago to over 30k today. The only way this is possible is by creating 5, 6 or even 7 year payment plans. I'll bet very few people could actually afford to buy a 30k car on a 3 or 4 year payment plan.
We've become a nation of consumers with huge credit card bills....not good!
Lou 12:55PM (9/15/2008)
I agree with LMBVette. I would go one step further by spending less than you qualify for and spend what you can afford. Maybe the economy used to be very good because people were out there spending money they did not have and it is time to pay the piper. But of course, it is all the government's fault that we made bad decisions. More personal responsibility and less government will do nicely. Too bad that is a fantasy...just look around.
AZMike 1:36PM (9/15/2008)
what a pompous comment.
I'm glad you've decided to elect yourself both judge and jury for what folks should be doing.
you're obviously an expert on leasing; are you aware exactly how much someone could save by leasing instead of buying?
let's look at a Mercedes-Benz C300, the cheapest Mercedes you can buy in the US. I'm using a price at invoice ($31,000) for a C300 with no options at all...stick shift and vinyl (MB Tex) seats.
present lease rate: $399 per month. would you rather buy it? that payment (at 8.5%) for 72 months would be $550; by the way, that doesn't include tax, doc fee, or license, which in my state would add another $3,641 to the price, or a jump in the payment from $550 to about $612.00 per month.
now, let's shift gears here, and go back to your original statement about how someone "should buy a cheap car".
let's look at an average Joe with a FICO score of 590. he present car crapped out, and he needs to replace it. he selects a one year old used(2007) Chevrolet Impala with a price of $15,995. let's add tax, license, doc fee, and extended warranty to that car. again, using my state as an example. that brings the total to $20,105. he can put down $1,105, which brings the amount financed to $19,000.
his credit isn't so great, but he is still financible.
the lender hits him at 17.5% interest, and limits the contract to 48 months. that payment would be $553.17.
if you're not familiar with the car business, this is a very typical scenario. perhaps you would feel (after all, you're making everyone's decision here, right?) a better choice would be a purchase from a "buy here-pay here" lot. after all, a "cheap car", right?
let's look at a three-year-old Cavalier with 80,000 miles on it; of course, no warranty. the lot's price is $14,999. don't bother to try to haggle here; they're providing the financing. forget about monthly payments; you'll be paying every week!!
it would break down like this: amount financed: $17,000 (same $1,100 down payment; again, tax, license, and doc have been added in) interest rate: 35% (quite normal for this type of operation) weekly (NOT monthly) payment: $165.62. by the way, that equals a monthly payment of $662.51!!!
now Swede, which is the "cheap car"???
the real issue here concerns the fact that the used car market has dropped dramatically in the past year, and no make is exempt from that. everyone is buried in any vehicle less than four years old.
couple that with the complete meltdown of the subprime auto lending market (which encompasses over 30% of all loan paper written), and you have the problem we have today.
this problem is hitting absolutely everyone, no matter how much they make, or what their FICO score is.
AZMike
f650 2:39PM (9/15/2008)
AZMike, I think you re-evaluate what a cheap car is. My motorcycle is two years old and still easily worth more than my car, and my fiance's car combined.
The stupid mentality of stupid people leads to their financial woes. First of all, leasing is a ridiculous and (yes, you guessed it) stupid. You're 'renting' a car, paying for the depreciation only. If you lease a car and make $10k in lease payments (Around $275/36 mo-which is low), instead you could buy a $10k civic and after 36 months it would still be worth around $7500. That's $7500 you would not have if you had leased.
Cheap cars are the way to go. Cars are not and investment (collectible cars withstanding), they go down in value.
I personally don't bother money, so financing, let along leasing seems pretty ridiculous to me.
BoxerFanatic 12:10PM (9/15/2008)
I am not sure if it is Greenspan alone, but that is certainly part of it. Bernanke (sp?) has not been any better, and I am sure there is a whole cadre of folks involved.
Easy cheap credit that people should not have had as much access to, and shifting economic bubbles, rather than letting them burst and repair is causing this. People have been sold more and more consumer debt for decades now. They are being sold and told not to live within their means, now it is coming back.
I have long said that the price of cars has gone up far faster than income, due to the ease of credit. Homes as well, and we are seeing the results there, too.
Now the market is correcting. It is correcting BIG, because they (FedGovt, and FED) pushed it too hard, rather than letting the market work.
The FED, and others have become too arrogant, thinking that they are (and that they should be) in control of the economy itself, rather than just being in control of their banks or businesses, and accountable to the markets. They are not in control of the economy, because control cannot be that centralized without becoming imbalanced.
The FED (federal reserve) is extra-governmental, so it has very little to do with the constitution, other than the government should declare it illegal due to monopolistic behavior, but who do you think is in FED's back pocket? The US Government of course, who are about as fiscally responsible as a 3 year old in a toy store, that uncle FED is giving them free access to other people's money.
But we should never have gone OFF the Gold Standard, I do whole-heartedly agree with that.
This is an object lesson in small, strictly limited government, to bar them from getting this involved, and screwing the affairs of the american people so badly, and putting the american people into even more debt.
Reply