Auto Sales Are Down, But Not As Much as Some Had Feared - WSJ

[Klaus]

ECONOMY


Auto Sales Are Down, But Not
As Much as Some Had Feared

This article, on auto sales, is part of a four-part package on the consumer economy in the wake of the Iraq war. Please see the other parts on real estate1, retail sales2 and online sales3.

Auto makers and retailers were upbeat about weekend traffic, saying sales are softer than a year ago, but the falloff is not as bad as the slump during the 1991 Gulf War, nor as serious as some analysts had feared.

Online car sites, often a good harbinger of upcoming sales, have seen some declines in traffic. CarsDirect.com says traffic to its Web site is off about 15% in the last few days, compared with a 50% drop in a single day on Sept. 11. At Autobytel Inc.'s site, week-over-week traffic was off about 5% in recent days. Stoneage.com, which also runs the Web site Car.com, has seen, "no significant drops" in traffic the past few days, said a spokesman.


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A roundup by Wall Street Journal reporters Karen Lundegaard in Detroit, Joseph Hallinan in Chicago and Maureen Tkacik in Los Angeles.


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Gary Dilts, Chrysler's sales chief, said the war was a factor in Saturday's sales, "but not as big a factor as we had thought." After the first Gulf War, sales slipped in the 25% to 30% range. "This war is under 10%," said Mr. Dilts, who spent Saturday visiting nine Chicago-area stores. "Dealers are optimistic." Nationally he's predicting an annualized pace in the "mid-15s," down slightly from 15.8 million vehicles a year ago. Chrysler's truck business is holding up "fairly well," he said, although the largest SUVS "got hammered last month and we hear they're in trouble again this month."

Gasoline prices also have impacted business at Schaumburg Toyota in suburban Chicago. Customers seem to be shopping for a different type of car. "No question about it," said Calvin Knutsen, sales manager at the Toyota dealership, who says he's seen much stronger demand for Toyota's hybrid car, the Prius, which uses both gasoline and an electric battery. "I've delivered half a dozen this week," he said. Before, he might have delivered six in a month. The demand for the $20,000 car has been driven by the increased cost of gasoline, he said. "We get a lot of people trading in their big, huge SUV's" for the Prius, he added.

Indeed, Art Spinella of CNW Marketing Research said his research shows that people are buying less car for their money, with the average sticker price of cars sold falling to $25,732 -- it's lowest level in more than a year. "People are buying down," said Mr. Spinella. He thinks they're looking at getting fuel economy, which often means getting a smaller car, a four-cylinder engine instead of a six-cylinder, or buying a car-based sport utility vehicle instead of a truck-based one -- all less expensive scenarios. "We saw the same things going back to the first two oil crises. It didn't last for long, but there were people who just did it."

Economy, Not War, Biggest Impact

CNW Research also shows a bounce in key sales figures since the war began. Floor traffic at dealerships is generally flat to better than a year ago, the length of time consumers will likely defer a vehicle purchase has fallen in the past week while the firm's internal consumer confidence survey of 3,800 consumers rose 6 points, a gain he called significant in a week. He's looking for March auto sales to be off 1% to 2% from a year ago, and better than February sales. Just a week ago, before the war officially began, Mr. Spinella predicted March sales would be down 5%.

Indeed, Mr. Knutsen, the Toyota dealership sales manager, says the war doesn't seem to have affected business. "It almost seems like it hasn't done a whole lot," he said. "We've had more people come through the door this week than we did last week." On Saturday, March 15, he had 86 people come through the showroom; by midafternoon this past Saturday he had 55 people come through, which would put him on about the same pace.

On a year-over-year basis, though, his business is slower. On the same Saturday a year ago, Mr. Knutsen said, he had 100 customers come through the door. He gave two reasons why business was slower: One was the general economy, the other was the effect of zero-percent financing offers introduced last year. The offers proved so popular that people who might have waited until this year to buy a car rushed out last year and bought one instead. "We stole a lot of this year's business last year," he says.

Low-cost financing is still a very important part of the equation. Of the 17 models the Toyota dealership offers, Mr. Knutsen said, 12 have special finance offers ranging from zero percent to 3.99%. But he has noticed a difference of late: "We have a lot more cash buyers than we used to."

The reason for that, he suspects, is home-equity loans. About one out of every four or five of his buyers pays cash, he said. And although the source of that cash isn't revealed, he suspects that much of it comes from home-equity loans.

Hummer Sales Hum

At Cerritos Auto Mall, the nation's highest-grossing strip of car dealerships, business is holding up well. While salesmen at the Hyundai and Ford outlets conceded that business wasn't quite up to par with last year's, Cerritos Hummer was "busier than ever," in the words of Hummer dealer Kim Biles, who said 12 of the formidable sport utility vehicles had been sold Saturday. Mr. Biles said he felt his business had been aided by the war. "I think that, psychologically, this vehicle feels very patriotic, and you watch the Humvees every day on the news in the desert and you know if soldiers trust the vehicles, you can trust them," he said. "Although it's mostly a status thing."

"We both work in really high-stress environments, and every day is like war, and a day off is a day off," explained Jim Higbee, a firefighter-paramedic from Long Beach who was in Cerritos to test drive an H2 Hummer. Jojo Delosaltos, a software entrepreneur in the process of buying a Hummer that, with options, cost "in the seventies," said he felt gas prices were headed down, making it "as good a weekend as any" to buy a sport utility vehicle.

"Americans love cars, Californians love cars, and watching the war hasn't really kept people away from Cerritos at all," said Mark Tudor, a Hyundai salesman. "Wednesday and Thursday were a little slow, but by now it's gotten repetitious."

'CNN Effect'

Several car dealers report that they're not seeing the "CNN effect" they did after September 11, 2001, or during the 1991 Gulf War, where consumers stayed home glued to the television sets for the latest news update.

"Saturday was business as usual, perhaps a tad better," said Kenneth Gilman, chief executive of Asbury Automotive Group Inc., which has 131 franchises at 93 dealerships, predominantly in the South. Three factors seem to be fueling consumer spending, he said: falling oil prices, the stock market's record gains of the past week and uncertainty of an Iraqi war finally lifted. Certain markets remained weak for them, such as Texas and Portland, Ore. Sales were strong across brands, he said, and German brands did not seem impacted by a feared backlash, given the country's opposition to the war.

"Traffic and sales on Saturday were very good right across the board," said B.B. Hollingsworth Jr., chief executive of Group 1 Automotive Inc., the Houston-based chain of 114 franchises at 73 dealerships. "Our showrooms and lots were busy, better than they had been last month. I guess people can only watch so much of CNN."

Paul Taylor, economist for the National Automobile Dealers Association, the dealer's trade group, reported a mixed bag from the 15-to-20 board members he regularly surveys. East Coast dealers had sales and traffic that were up slightly the last few days, attributed to a catch-up in sales from lousy February weather. Elsewhere sales were down slightly, although California, the country's largest car market, appeared strong. He's predicting sales for the month will be down less than 5%.

The seemingly stronger sales than many had anticipated happened in spite of the auto industry's quiet pullback. Many auto makers and dealers pulled advertising over the weekend. And General Motors Corp. and Ford Motor Co. have been quiet on the incentive front, with no mid-month surge in giveways, which has become almost expected, said Joe Cashen, director of pricing strategy at CarsDirect.com.

The industry is waiting for GM, which has led the incentive wars, to make its next big incentive push, with the impact of its once-popular zero-percent financing deals losing steam. "Stay tuned," said Paul Ballew, General Motors chief sales analyst, when asked about GM's next big incentive program. "We're certainly going to remain competitive and aggressive in the marketplace."

Mr. Ballew added that if oil prices continue to drop, he'll feel better about the outlook for the second half of the year. "We're a bit cautiously optimistic at this point," he said.

Write to Karen Lundegaard at karen.lundegaard@wsj.com,7 Joseph Hallinan Joseph.Hallinan@wsj.com8 and Maureen Tkacik at Maureen.Tkacik@wsj.com9

URL for this article:
http://online.wsj.com/article/0,,SB1...338800,00.html

Updated March 24, 2003 12:04 p.m.

[Klaus]

ECONOMY


Auto Sales Are Down, But Not
As Much as Some Had Feared

This article, on auto sales, is part of a four-part package on the consumer economy in the wake of the Iraq war. Please see the other parts on real estate1, retail sales2 and online sales3.

Auto makers and retailers were upbeat about weekend traffic, saying sales are softer than a year ago, but the falloff is not as bad as the slump during the 1991 Gulf War, nor as serious as some analysts had feared.

Online car sites, often a good harbinger of upcoming sales, have seen some declines in traffic. CarsDirect.com says traffic to its Web site is off about 15% in the last few days, compared with a 50% drop in a single day on Sept. 11. At Autobytel Inc.'s site, week-over-week traffic was off about 5% in recent days. Stoneage.com, which also runs the Web site Car.com, has seen, "no significant drops" in traffic the past few days, said a spokesman.


--------------------------------------------------------------------------------

A roundup by Wall Street Journal reporters Karen Lundegaard in Detroit, Joseph Hallinan in Chicago and Maureen Tkacik in Los Angeles.


--------------------------------------------------------------------------------

Gary Dilts, Chrysler's sales chief, said the war was a factor in Saturday's sales, "but not as big a factor as we had thought." After the first Gulf War, sales slipped in the 25% to 30% range. "This war is under 10%," said Mr. Dilts, who spent Saturday visiting nine Chicago-area stores. "Dealers are optimistic." Nationally he's predicting an annualized pace in the "mid-15s," down slightly from 15.8 million vehicles a year ago. Chrysler's truck business is holding up "fairly well," he said, although the largest SUVS "got hammered last month and we hear they're in trouble again this month."

Gasoline prices also have impacted business at Schaumburg Toyota in suburban Chicago. Customers seem to be shopping for a different type of car. "No question about it," said Calvin Knutsen, sales manager at the Toyota dealership, who says he's seen much stronger demand for Toyota's hybrid car, the Prius, which uses both gasoline and an electric battery. "I've delivered half a dozen this week," he said. Before, he might have delivered six in a month. The demand for the $20,000 car has been driven by the increased cost of gasoline, he said. "We get a lot of people trading in their big, huge SUV's" for the Prius, he added.

Indeed, Art Spinella of CNW Marketing Research said his research shows that people are buying less car for their money, with the average sticker price of cars sold falling to $25,732 -- it's lowest level in more than a year. "People are buying down," said Mr. Spinella. He thinks they're looking at getting fuel economy, which often means getting a smaller car, a four-cylinder engine instead of a six-cylinder, or buying a car-based sport utility vehicle instead of a truck-based one -- all less expensive scenarios. "We saw the same things going back to the first two oil crises. It didn't last for long, but there were people who just did it."

Economy, Not War, Biggest Impact

CNW Research also shows a bounce in key sales figures since the war began. Floor traffic at dealerships is generally flat to better than a year ago, the length of time consumers will likely defer a vehicle purchase has fallen in the past week while the firm's internal consumer confidence survey of 3,800 consumers rose 6 points, a gain he called significant in a week. He's looking for March auto sales to be off 1% to 2% from a year ago, and better than February sales. Just a week ago, before the war officially began, Mr. Spinella predicted March sales would be down 5%.

Indeed, Mr. Knutsen, the Toyota dealership sales manager, says the war doesn't seem to have affected business. "It almost seems like it hasn't done a whole lot," he said. "We've had more people come through the door this week than we did last week." On Saturday, March 15, he had 86 people come through the showroom; by midafternoon this past Saturday he had 55 people come through, which would put him on about the same pace.

On a year-over-year basis, though, his business is slower. On the same Saturday a year ago, Mr. Knutsen said, he had 100 customers come through the door. He gave two reasons why business was slower: One was the general economy, the other was the effect of zero-percent financing offers introduced last year. The offers proved so popular that people who might have waited until this year to buy a car rushed out last year and bought one instead. "We stole a lot of this year's business last year," he says.

Low-cost financing is still a very important part of the equation. Of the 17 models the Toyota dealership offers, Mr. Knutsen said, 12 have special finance offers ranging from zero percent to 3.99%. But he has noticed a difference of late: "We have a lot more cash buyers than we used to."

The reason for that, he suspects, is home-equity loans. About one out of every four or five of his buyers pays cash, he said. And although the source of that cash isn't revealed, he suspects that much of it comes from home-equity loans.

Hummer Sales Hum

At Cerritos Auto Mall, the nation's highest-grossing strip of car dealerships, business is holding up well. While salesmen at the Hyundai and Ford outlets conceded that business wasn't quite up to par with last year's, Cerritos Hummer was "busier than ever," in the words of Hummer dealer Kim Biles, who said 12 of the formidable sport utility vehicles had been sold Saturday. Mr. Biles said he felt his business had been aided by the war. "I think that, psychologically, this vehicle feels very patriotic, and you watch the Humvees every day on the news in the desert and you know if soldiers trust the vehicles, you can trust them," he said. "Although it's mostly a status thing."

"We both work in really high-stress environments, and every day is like war, and a day off is a day off," explained Jim Higbee, a firefighter-paramedic from Long Beach who was in Cerritos to test drive an H2 Hummer. Jojo Delosaltos, a software entrepreneur in the process of buying a Hummer that, with options, cost "in the seventies," said he felt gas prices were headed down, making it "as good a weekend as any" to buy a sport utility vehicle.

"Americans love cars, Californians love cars, and watching the war hasn't really kept people away from Cerritos at all," said Mark Tudor, a Hyundai salesman. "Wednesday and Thursday were a little slow, but by now it's gotten repetitious."

'CNN Effect'

Several car dealers report that they're not seeing the "CNN effect" they did after September 11, 2001, or during the 1991 Gulf War, where consumers stayed home glued to the television sets for the latest news update.

"Saturday was business as usual, perhaps a tad better," said Kenneth Gilman, chief executive of Asbury Automotive Group Inc., which has 131 franchises at 93 dealerships, predominantly in the South. Three factors seem to be fueling consumer spending, he said: falling oil prices, the stock market's record gains of the past week and uncertainty of an Iraqi war finally lifted. Certain markets remained weak for them, such as Texas and Portland, Ore. Sales were strong across brands, he said, and German brands did not seem impacted by a feared backlash, given the country's opposition to the war.

"Traffic and sales on Saturday were very good right across the board," said B.B. Hollingsworth Jr., chief executive of Group 1 Automotive Inc., the Houston-based chain of 114 franchises at 73 dealerships. "Our showrooms and lots were busy, better than they had been last month. I guess people can only watch so much of CNN."

Paul Taylor, economist for the National Automobile Dealers Association, the dealer's trade group, reported a mixed bag from the 15-to-20 board members he regularly surveys. East Coast dealers had sales and traffic that were up slightly the last few days, attributed to a catch-up in sales from lousy February weather. Elsewhere sales were down slightly, although California, the country's largest car market, appeared strong. He's predicting sales for the month will be down less than 5%.

The seemingly stronger sales than many had anticipated happened in spite of the auto industry's quiet pullback. Many auto makers and dealers pulled advertising over the weekend. And General Motors Corp. and Ford Motor Co. have been quiet on the incentive front, with no mid-month surge in giveways, which has become almost expected, said Joe Cashen, director of pricing strategy at CarsDirect.com.

The industry is waiting for GM, which has led the incentive wars, to make its next big incentive push, with the impact of its once-popular zero-percent financing deals losing steam. "Stay tuned," said Paul Ballew, General Motors chief sales analyst, when asked about GM's next big incentive program. "We're certainly going to remain competitive and aggressive in the marketplace."

Mr. Ballew added that if oil prices continue to drop, he'll feel better about the outlook for the second half of the year. "We're a bit cautiously optimistic at this point," he said.

Write to Karen Lundegaard at karen.lundegaard@wsj.com,7 Joseph Hallinan Joseph.Hallinan@wsj.com8 and Maureen Tkacik at Maureen.Tkacik@wsj.com9

URL for this article:
http://online.wsj.com/article/0,,SB1...338800,00.html

Updated March 24, 2003 12:04 p.m.