Things are bad and potentially getting worse for the auto industry. Virtually every manufacturer is reeling from a terrible April. Leading the way in plummeting sales is Chrysler who saw sales slump 23.5% in April. In January analysts predicted a bad 2008 and as we completed the first third of the year it appears their predictions might have been too optimistic! Current forecasts are calling for 2008 to see total units sold decrease by 1 million units as compared to 2007. If this is the case, 2008 will be the worst year for auto sales since the dark days of 1991.
To make matters worse, the majority of sales volume lost will be in the highly profitable pickups and SUVs segments. With gas prices skyrocketing the only vehicles rolling off dealer lots these days are fuel efficient vehicles, unfortunately for car dealers these cars provide much less profit compared to a truck or SUV. So the combination of fewer units sold and less profit per unit is a devastating combination for the auto industry. The losses can be huge, for example GM’s auto revenue dropped $3.6 billion, Ford saw a $1.4 billion slide.
Asian and European manufacturers are not exempt from the problems facing US auto makers. Toyota, the brand once viewed as indestructible has seen Tundra sales decrease for 5 straight months. You must give Toyota a great deal of credit for being innovative when faced with sales problems. For instance, the Tundra was built to compete head-to-head with Ford and Chevy pick-ups. Since customers are not shopping for Tundras, Toyota has decided to bring their truck to potential customers by displaying them at Home Depots around the country. It’s a great way to put their truck in front of their target audience.
But no truck maker is suffering worse than Dodge. The Dodge Ram has held a solid position in the US truck market for decades, things have changed. The combination of the US economic problems coupled with Toyota and others taking a bigger piece of the truck market have left the Dodge Ram on the outside looking in. If you look in your local paper’s auto section you will find dealers advertising new 2008 Dodge Ram pick-ups as low as $13,000 below sticker and they still can not sell any units. Making matter worse the all-new, redesigned 2009 Dodge Ram will be in showrooms in 4 months. This is a problem because Dodge dealers can not move their remaining 2008s as inventory climbs past the 109 day supply level. This equates to a dealer have twice their normal inventory of Dodge Ram pick-ups with virtually no floor traffic coming in. Couple that with the fact that a large portion of potential Dodge Ram buyers probably want to wait and see the new 2009 while anticipating even better deals on the old 2008s once the new Ram is on dealer lots. I do not envy anyone trying to sell a Dodge Ram today.
The auto sales market falling is the cumulative effect of many things. Nothing is hurting the car market more than the rising cost for fuel, but the weak dollar, Iraq war and the slumping housing market are all taking their toll on auto sales. Dealers and manufacturers have tried in vain to reverse the trend. For instance, over the last 3 years auto manufacturers have been cutting back on cash rebates after dropping new model year MSRPs. Then this April, under the pressure of an extended sales slump virtually every auto manufacturer increased rebates. Historically, increasing rebates tends to bring buyers into the market, but this April the ploy didn’t avert horrible sales. Another sales stimulus manufacturers have used for years is sub-vented financing. For the last couple of months Ford has been offering buyers 0% financing for up to 60 months yet sales have not risen like they have in the past.
The significant decline in new car sales is also affecting the used car market. Prices of used cars are slumping as more and more vehicles are coming off leases. The luxury cars makers are feeling the biggest hit here. This is calculated by comparing present retail prices with projections made three years ago. For example, the retail value of the average Mercedes-Benz is $4,739 less than what was projected three years ago. BMW is down almost $3,000, Lexus is down $1,412. So absolutely nobody is doing well in this very difficult auto sales market.
So, with all this bad news what is on the horizon? Well, the answer depends on who you speak with. Carlos Ghosn, Nissan’s CEO is on record as saying the US car market will not recover until 2011. And the prediction from the glass is half full side, GM is on record predicting a recovery in the 2nd half of this year. Only time will tell who’s right, but I think GM’s prediction is much more wish than reality.
Now if you are shopping for a car now, or in the near future you need to use this information as an aid. When you walk into a car dealership you should be entering from a position of strength. You are something they do not have many of… a customer. You should be treated well and get an extremely good price, you deserve it! Additionally, if you might consider a vehicle from GM or Ford you are really in a great position. In my opinion these companies are making excellent products and they are not selling as well as they should. This is not a reflection on the present vehicles, rather the result of mistakes the companies made years ago. Today, the quality offered by Ford and GM are second to none and because their sales are down you are in a position to get an incredibly good price!