Analysts, Car Buyers Suffer Loss of Confidence
By Bree Folwer
AP Auto Writer
As car buyers lose confidence, so do auto analysts. Consumer confidence is at all-time low. People are unable or unwilling to take on any additional payments. This has prompted auto analysts to slash their forecasts for sales of new cars and trucks this year, citing increasing uncertainty about whether the industry can rebound in the second half.
Automakers report results for February on Tuesday. In January, industrywide light vehicle sales dropped a combined 37 percent. Some industry observers expect February's sales to be even worse.
Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com, said would-be car buyers are becoming increasingly scared that they won't have a job down the road.
"There's so much uncertainty," Toprak said. "Even if they have a job, they probably have friends and family that don't, so it's becoming more real to them."
Crumbling consumer confidence has replaced tight credit markets as the biggest hurdle to selling cars, according to Toprak. Meanwhile, housing values continue to tumble, also making consumers more cautious about how they spend their money.
In addition, fearful car buyers are well aware that both General Motors Corp. and Chrysler LLC are fighting to stay alive with the help of billions in loans from the federal government.
With all the headwinds consumers are walking into, analysts for J.D. Power and Associates on Thursday slashed their 2009 sales forecast by 1 million units to a seasonally annualized adjusted rate of 10.4 million units. That figure, known in the industry as SAAR, indicates what sales would be for the full year if they remained at that month's pace, with adjustments for typical seasonal fluctuations.
Toprak is even more pessimistic. He revised his forecast downward to 10.1 million units.
Some car shoppers that previously would have bought a new vehicle are opting for a used one instead, thinking that its a safer purchase. That's not always the case, Toprak said.
According to an Edmunds.com study, about 511,000 used-car sales in the past three months would have been new car purchases during better economic times. Those lost sales project a SAAR of more than 2 million vehicles, or 15 percent of total new car sales based on last year's sales figures, Edmunds said.
Toprak said consumers need to crunch the numbers when weighing new car models against used ones. Hefty cash and financing incentives being offered by the automakers, along with warranty and amenity benefits, can make new cars a better deal.
For the month of February, Toprak expects new vehicle sales of 9.3 million on a SAAR basis, down 41 percent from a year ago. J.D. Power projected a February rate of 9.1 million units. Analysts there added that sales should bottom out in February or March, while saying that the outlook for the second half of the year remains very murky.
George Pipas, Ford Motor Co.'s top sales analyst, said he doesn't think the sales rate will drop below 9 million, but will likely come under January's 9.6 million.
Ford earlier in the week reduced the low end of its full-year sales forecast range to 10.2 million light vehicles from 11.2 million. Ford also cut its first-quarter North American production forecast by 25,000 from previous estimates, to 375,000 vehicles.
Although the Dearborn, Michigan-based automaker expects a small recovery later this year, it isn't basing its production plan for the rest of the year on any resurgence, Pipas said.
Citi's Itay Michaeli said programs such as Hyundai's "Assurance" might be the best way to restore car buyers' confidence.
Under the program, the South Korea-based automaker will cover the depreciation on any returned leased or financed vehicle for the first 12 months if buyers find themselves unable to make payments.
Customers must have been stricken by misfortune outside of their control, such as job loss, disability or the loss of a driver's license for medical reasons.
Customers must also have made at least two payments on the car. Hyundai will only refund the depreciation on the returned car up to $7,500.
Hyundai has expanded the program with an offer to pay a customer's lease or loan payments for three months while they look for a job. If things don't work out, the customer can return the car without hurting their credit.
Toprak said Hyundai could prove to be an industry bright spot again in February, though he expects its sales to be largely flat on tough comparisons to a strong February 2008.
Automakers such as Kia and Subaru, which many car buyers view as high-value brands, could also outperform the competition, he said. Subaru is the only automaker that Toprak expects to post a sales increase for the month.
Sales of the automaker's top-selling all-wheel drive Forester, which starts at $19,995, more than doubled to 5,162 units in January.
"I think Subaru buyers are very loyal," Toprak said. "They're also perceived as a good value and a good quality vehicle, especially for an all-wheel-drive vehicle in the snow belt regions."
AP Auto Writer Tom Krisher contributed to this report.