DETROIT – This recession is taking a greater toll on the automotive industry than past downturns, says Paul Taylor, chief economist for the National Automobile Dealers Assn.
“This current period is going to be more severe for our industry,” he predicts, in a presentation at a recent conference here.
One of the primary differences is the absence of a rebound in used-truck prices after gasoline fell from roughly $4 a gallon last year to less than $2 in 2009.
“When gas prices moderate, we see (used-truck) prices pick back up, and we’ve seen that cycle every (recession) until we got to 2008,” he says.
However, used-car prices have been on the rise, as more consumers looking for fuel-efficient vehicles buy used rather than new.
Despite that, retailers are failing to turn a profit on used cars.
“Dealers never make money on a new car, it’s always been used cars and service that helped support dealers through (recessions),” Taylor says. “In 2008…dealers didn’t make money on used cars for the first time in the history of the industry. It was parts and service only that helped keep dealers open.”
While some dealers have been able to weather the economic storm, some 960 showrooms were lost last year and another 1,200 will close this year, Taylor says. “The financial stress is huge.”
The severity of the recession is reflected in a Commerce Dept. report this week showing the U.S. gross domestic product fell at a seasonally adjusted annual rate of 6.1% in the first quarter, a larger drop than most analysts predicted.
That marks the third-consecutive quarter the GDP has declined, a trend that hasn’t occurred in 34 years.
New light-vehicle sales through March were off 38.3% vs. year-ago to 2,197,239, Ward’s data shows.
But there is a silver lining in rising used-car prices: Consumers have noticed there isn’t much difference in cost between a new or used vehicle. That may start driving new-vehicle sales, Taylor says.
He predicts U.S. new-vehicle demand will range 10 million-12 million units in 2009, but says that forecast could prove optimistic should housing prices continue to fall.
There are some regions where home values have leveled off, including most of the Midwest, Texas, Colorado and southwestern states such as Alabama and Mississippi. Those areas can expect “sales to improve in the second half fairly strongly,” Taylor says.
Unfortunately, 20 other states, including California, Florida, Arizona and Michigan, will continue to lag the rest of the nation.
“The erosion of the job base has resulted in real estate to continue to go down,” he says. “So that’s where we expect to continue to see soft sales, because consumers are not anxious to buy when they’re watching their home equity evaporate. And banks aren’t interested in lending in those states when portfolios of real-estate loans are impaired.”