Charting the rise and fall of car and truck sales is a simple way to gauge the health of the economy.
When we feel good about our prospects, we buy.
When fearful, we hold back.
This year, a huge run-up in gas prices was followed by weeks of financial crises. Combined with uncertain job prospects and declining wealth, it created one of the toughest markets in decades.
Vehicle sales have dropped so sharply that one analyst wonders how many people are just going to hold on to their vehicles until they fall apart.
In September, taxable sales of new and used motor vehicles were down 29.8 percent from a year earlier, the Arizona Department of Revenue reported Thursday.
The skid in sales puts pressure not only on automakers, auto dealers and their employees, but on state and local governments, which count on the sales-tax revenues.
Arizona auto dealers are fighting back, offering deals that include incentives of up to $10,000 on some vehicles and zero-percent financing. Prices have fallen back to levels of five or more years ago, especially on pickup trucks. And dealers emphasize that credit still is available.
Although it will be awhile before October vehicle-sales numbers are reported, some evidence indicates that the incentives are working.
This decade, vehicle sales have run about 16 million to 17 million units a year. J.D. Power and Associates, a marketing-information services firm, predicts sales will fall to about 13.6 million units this year and 13.2 million units in 2009.
That’s approaching a “scrappage rate,” or a basic market where most purchases are just replacements for vehicles that are ready for the junkyard because they got too old or were destroyed in an accident, said Bob Schnorbus, chief economist with J.D. Power in Detroit.
Reasons for the slide in auto sales include gas prices, declining consumer confidence, the credit crunch and a manufacturers’ trend away from offering leases.
Schnorbus said the slowdown can be traced to early in the decade, when manufacturers offered major incentives and boosted sales of new cars and trucks so much that many people didn’t need to buy vehicles for a while. In mid-decade, manufacturers started cutting back on fleet sales and leases because they decided neither was that profitable.
Knox Ramsey, a veteran of the auto industry and president of the Valley Auto Dealers Association, said he has seen a link between auto sales and consumer-confidence surveys for the past 40 years. “There are more parallels with those two than anything else,” he said.
On Tuesday, the U.S. Conference Board reported its monthly Consumer Confidence Index had reached an all-time low.
The drop in vehicle sales is affecting a broad part of the U.S. economy.
Motor-vehicle sales account for about one-fifth of all retail sales, according to the National Automobile Dealers Association.
The slowdown and decrease in vehicle sales-tax revenues is a major reason that state and many city budgets are in trouble, forcing service cuts and layoffs. If the trend toward less expensive, more fuel-efficient vehicles – think Prius vs. Hummer – becomes permanent, sales-tax revenues may not immediately recover in an upswing.
First to feel pain
In Arizona, vehicle sales have been falling for 20 months. This year, they began sinking at an accelerated rate.
Mike Breyfogle, general manager of Tempe Dodge, said the Arizona declines in 2007 were telling everybody where the economy was heading.
“My take is that the sales side of the car business has always been the first to feel it getting tight,” he said.
Some stores have closed, including two Bill Heard dealerships in Scottsdale and two AutoNation Inc. stores: Power Pontiac/Buick/GMC in Scottsdale and Power Chevrolet in west Phoenix. Dan Grubb Ford in Phoenix consolidated with Pioneer Ford in Goodyear.
Dealers say they are surviving by reducing inventory as best they can and controlling expenses.
Although there have been some high-profile closings, the number of dealerships has increased, according to the Arizona Motor Vehicle Division. In mid-October, there were 2,488 dealerships in Arizona, compared with 2,468 in fiscal 2003-04, the MVD said.
Ramsey said the number of dealers reflects growth in the Phoenix area, especially along the new freeways.
Sales of motor vehicles have been falling nationally since 2005, just about the time the housing market crested, according to J.D. Power.
Then, as consumers confronted falling home prices and mortgage issues, gasoline prices began rising to the $3-a-gallon level late last year, then surpassed $4 a gallon in the spring before falling back.
Customers not only stopped buying gas-guzzlers but began trading for more efficient cars or bought second vehicles.
In some ways, that spurred purchases. Monte Yocum, general manager of SanTan Honda Superstore in Chandler, said he had his best sales month of the year in July.
But Nathan Riggs, finance and insurance manager at Berge Ford in Mesa, said some customers lost thousands of dollars on trade-ins because they owed so much on the vehicles being traded.
Carlos Gonzalez, 29, and his wife, Ivonne Medina, 27, of Maricopa, tried to trade in a 2008 Nissan SUV for a Honda sedan but decided it would be cheaper to keep the SUV.
“They wanted to take the car and for us to pay them another $10,000,” Medina said.
Just as gas prices began falling, freeing some cash for consumers and easing worries about higher-mileage cars, credit markets tightened.
GMAC Financial Services, financing arm of General Motors Corp., said this month that it would finance purchases only for buyers with credit scores of 700 or higher.
Steve Moore, general manager of Peoria Pontiac GMC Inc., said: “Banks are just looking harder at anyone with less-than-stellar credit. It just makes it more difficult to do business.”
But Ramsey said most buyers aren’t going to be affected by credit restrictions. About 73 percent of auto sales are already to people with scores of 700 or higher, he said.
Commercial sales to businesses are facing tougher credit obstacles than consumer sales, Breyfogle said. “On the commercial side, we (Tempe Dodge) had 12 deals last month (September) we couldn’t fund.”
If you have a job, good credit and confidence, it’s a great time to buy.
“The prices for a lot of our new stuff, you’re talking five- and 10-year lows on almost everything,” Breyfogle said. “I have new (Dodge) Ram pickups selling for $1,000 less than I sold them in the mid-1990s.”
Chris Guerrero, principal at SanTan Ford in Gilbert, said the F150 pickups may have a dealer price of $32,000 to $34,000, but after incentives, the price drops to about $22,000 to $24,000, comparable to six or seven years ago.
“We are having one of our better truck months compared to the last four to five months,” he said. “Now that incentives are better than they ever have been, people are taking advantage.”
Libby Krum, spokeswoman for the American International Automobile Dealers Association, said Toyota’s offer of zero-percent financing appears to be drawing buyers.
“The truth is, most people can qualify for credit. It’s not quite so bad as people make out,” she said.