Auto dealers in a slump - East Valley Tribune: Business

Auto dealers in a slump

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Posted: Tuesday, May 6, 2008 4:44 pm | Updated: 8:57 pm, Fri Oct 7, 2011.

The shaky economy is putting the brakes on auto sales at a time when a growing number of consumers are already having a tough time repaying their auto loans.

GRAPHIC: View the delinquent indirect and direct auto loans

The shaky economy is putting the brakes on auto sales at a time when a growing number of consumers are already having a tough time repaying their auto loans.

Click on the graphic to view both the delinquent indirect and direct auto loans

"People are conscious about where their costs are," said Marc Cannon of AutoNation, the nation's largest auto retailer.

For the first two months of this year, auto sales in Arizona were down 7 percent compared to the same period last year, according to R.L. Polk & Co. Many Arizonans bought homes with adjustable rate mortgages and then saw big jumps in their mortgage interest rates in 2006 and 2007, Cannon said.

"People had less income because they were paying more on their homes," he said. "Interest rates have come down, but at the same time the economy has become shaky because their home (values) have come down, so they've got less equity in their homes. And then you put on top of that the whole issue of the cost of food and other things, and now with gas at $3.50 and approaching $4, now people say to themselves 'Hey, I don't want to overcommit myself.'"

The SUV stampede is over and bigger definitely is not better, Cannon said.

"You obviously see more SUVs being traded in," he said. "People are clearly moving to cross-over vehicles ... to value-priced cars, cars that are serving their needs, but are putting less burden on their monthly income. Customers are clearly looking at the price of a vehicle more than they ever have before."

GMAC Automotive Finance, the nation's largest auto financier, reported decreasing sales in North America, from nearly 1.6 million vehicles in 2006 to 1.4 million vehicles for 2007. It has not released any figures for 2008.

"Certainly with what the mortgage industry is going through and with what the residential mortgage implications are, consumers are being stretched, the value in the home is not there to be easily tapped into, and so it's affecting their overall portfolios in terms of what they can do," said Michael Stoller, GMAC spokesman.

The problem is even more acute in the Valley. In Maricopa County, auto sales were off about 20 percent in January and February compared to the same period last year, while sales nationally were off about 5 percent, said Knox Ramsey, president of the Valley Auto Dealers Association, which represents franchise new car and new truck dealers across the Valley.

Among the trends, truck sales have stalled along with the downturn in the construction industry, he said. But used vehicle sales haven't slowed nearly as much as sales of new vehicles, he said.

"You are finding some new car intenders who, for economic reasons, might want to go to a late model used car," Ramsey said. "And if you get a certified vehicle, which you can only get at new car dealerships, then you have the advantage of really great warranty coverage."

In the meantime, indirect auto loan delinquencies increased to 3.13 percent in the fourth quarter of 2007 from 2.57 percent in the same quarter of 2006, according to the American Bankers Association. Indirect auto loans are obtained through auto dealerships and account for 90 percent of all auto loans.

"It's general weakness in the economy," said Carol Kaplan, association spokeswoman. "People are having difficulty making their mortgage payments, they're having difficulty paying off their credit cards and it just follows that they would also have difficulty making their auto payments. It's just not a good time all the way around for consumers making payments on loans."

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