DEALERS AND ANALYSTS CONSIDER WHEN CONSUMER CONFIDENCE WILL BOUNCE BACK

At the Auto Remarketing Conference in Chicago on Sept. 10, economists and analysts voiced cautious optimism about the near-term future of the automotive retail industry.

The next day, the nation's symbols of economic strength crashed to the ground. Now the nation struggles to assess the long-term collateral damage to an economy and an auto industry that had been resting on the shoulders of consumer confidence — a confidence that may no longer exist.

For dealers, like everyone else, the emotional horror had immediate impact. “My head wasn't in the game. It took me a while to get the focus back,” says Gilbert Chavez, general manager of the Burt Automotive Network in Denver.

Dealer Rick Kline of Kline Auto World in Minneapolis, acknowledges, “The events of that day affected me deeply. I know they affected my employees. If we were being affected, then our customers are certainly being affected.”

That impact is felt in the showroom. Dealers nationwide reported little traffic and plummeting sales in the days following the attack.

Howard Hakes, vice president for the Hitchcock Automotive Resources in City of Industry, CA, reports business is way down. “The phones aren't ringing and traffic is slow right now,” he says.

Adds Mr. Chavez, “There has been a drop off but we're still selling cars although it's nothing to write home about.”

The news wasn't all bad, though. Other dealers say business began rebounding about a week after the terrorist attacks.

“Business started to come back that Monday,” says Scott Reese, general manager for Jerome Duncan Ford in Sterling Heights, MI. He adds, however, “Business is still off quite a bit.”

Two Virginia dealerships, Saturn of Alexandria and Radley Chevrolet of Fredericksburg, report business was busy the days immediately following the terrorist attacks. Jonathan Pittman, Radley Chevrolet's used car manager, reports, “We had five of our busiest day of the year. It was amazing. I certainly can't explain it.”

Lithia Motors Chairman and Chief Executive Officer Sidney B. DeBoer says, “Retail sales in the weekend following the tragedy in New York were down less than 10% compared to the weekend before the incident. Sales appeared to be almost back to normal levels the next week.”

The Power Information Network (PIN), a division of J.D. Power & Associates, collects daily new vehicle transaction data from approximately 5,000 dealerships and reported an average drop of 32% the first six days of the crisis compared to the previous month's same day sales.

The numbers, however, recovered slightly the next week to be about 25% off the previous month's sales.

“The declines are substantial, but given the gravity of the situation I would not have been surprised if they had been much worse,” says Tom Libby, analyst and director of PIN consulting operations at J.D. Power and Associates.

Sales dropped an estimated 25% that first week, says Jeff Beddow of the National Automobile Dealers Association.

As for any long-term predictions of the fallout, Mr. Beddow notes, “We don't have any kind of information yet to make a solid forecast. We are optimistic, though.”

Mr. Chavez thinks the jury is still out. “People are reevaluating their priorities. Maybe they don't need that new car just yet.”

Tom Kontos, chief economist and industry analyst for Adesa Corp., is holding to his original projection of 16.5 million vehicle sales this year.

“We'll see a mourning period that will go away over time. The industry is being proactive and trying to pull out of the funk,” he says. “Right now, we're talking only about a couple of weeks of down sales so I don't think I should readjust my end-of-year projections just yet.”

Haig Stoddard, Ward's manager of industry analysis, readjusted his projections from 16.5 million to 16.3 million because of production cuts. Ward's estimates units produced will be down 117,000 units for September, compared to what was scheduled, with 110,000 of that due to the attack.

Ford Motor Co. will be hardest hit — its inventory will be down about 100,000 units for the third quarter, says Mr. Stoddard.

“Ford is getting hit harder because they have so many parts imported from Canada,” he explains.

Increased security at the Canadian and U.S. border has caused delays of up to 12 hours. As a result, Ford has had to cut production significantly.

“That will leave Ford dealers scrambling for new model year inventory,” says Mr. Stoddard. “Chrysler and GM will probably pick up some of that business.”

“We'll just have to be creative and flexible when managing our inventories,” says Mr. Chavez.

Tom Webb, chief economist and industry analyst for Manheim Auctions, doesn't envision a bottoming out of the market. “I do believe there is potential for a much quicker snap back for the economy. Next year, definitely, we will see lower sales, but I think dealers will be able to manage their profits better.”

Mr. Kontos says dealers may find opportunities in the used-car market to offset declining new vehicle sales. “Rental companies are slashing their inventory at the airports because no one is flying right now. And those cars are going to the auction, so dealers may find it easier to grow their used-car inventories.”