Recessions Don’t Necessarily Hurt Auto Sales

Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – Contrary to popular belief, the U.S. recessions of 1990, 1992 and 2001 did not hurt auto sales, Paul Taylor, chief economist for the National Automobile Dealers Assn., tells attendees here at the group’s annual convention.

But while he anticipates a “non-recession” in 2008, Taylor predicts U.S. light-vehicle sales will drop to 15.7 million units, 400,000 fewer deliveries than like-2007.

“There’s some sort of symmetry there,” he says of the irony of vehicle sales holding their own during recessions and often falling when none exist.

The 2001 recession notwithstanding, sales did well that year, as auto makers rushed in with economic curatives such as hefty incentives and zero-percent financing.

Taylor predicts modest incentives in 2008, without ruling a possible spike at some point to spur sales.

“It’s possible to avoid a recession in 2008,” he says. “But auto sales will suffer from the spillover of the real-estate difficulties and a credit-induced slowdown on big-ticket items.”

Taylor anticipates the housing industry’s widespread slowdown will stretch into 2009, affect about half the U.S. population. and “continue to be a drag on new-car sales.”

NADA economist Paul Taylor

Higher prices at the pump, along with increased home-energy costs, also will “continue to drain money from consumer budgets and slow down spending,” he says.

Taylor predicts the unemployment rate, which rose to 4.8% in January, will hit 5.3% to 5.4% this year but won’t match 2002’s peak of 6%.

Nevertheless, there is some relatively good economic news for the auto industry.

For example, the nation’s home-mortgage debacle has not spilled over to stain the financing of new-car deals, Taylor says. “I’ve talked to a lot of dealers, and they say they are not really facing obstacles in auto financing.”

Auto-loan underwriting has been “pretty solid,” compared with the looseness of many mortgage underwriters that now are feeling the pain, he adds.

“Many mortgage lenders weren’t making the phone calls to make sure borrowers had the jobs and incomes they said they did,” Taylor says. “That’s what created the problems.”

Auto loans eventually may cost more to some consumers, “but it will still be possible to get people financed, and that’s the key to moving sales forward,” he says.

Lenders burned by the recent rash of mortgage defaults may shift their efforts to or increase their participation in auto financing, Taylor suggests.

“Lending institutions must lend money to make money, and they now have an incentive to lend more in the new- and used-vehicle sectors,” he says.

Meanwhile, Taylor predicts the slow-growing economy will pick up in the year’s second half. “The economy continues to function, so it leaves me fairly optimistic that it will improve this year.”

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