Posted by: David Welch on September 4, 2007
Another month of slightly-down car sales should be enough to put anyone to sleep. But AutoNation CEO Mike Jackson thinks that the slumping economy and car market should wake plenty of Detroit executives and Washington economists in a cold sweat. High fuel prices, the mortgage mess, evaporating home equity and tight credit have all conspired to keep car buyers at home, logging more miles on the beater until they have confidence that they will be able to afford car payments over the next couple of years. Even mighty Toyota is having trouble holding on to last year’s sales performance, with August sales down 3%. Ford, by the way, saw a big slide with sales down 15% and the new Chrysler LLC posted a 6% drop. Honda and Nissan were up.
When Toyota has a down month, you know it’s tough all over. Take General Motors. The company could brag a bit that its sales were up 6% this month in a market that was down almost 2%. But even that performance, which can only be described as fair, was a wind-aided accomplishment. GM upped incentives on its Chevrolet Silverado and GMC Sierra pickup to get sales of those trucks up more than 30%. They aren’t the only company discounting to move pickups. All the major players, yes Toyota, too, have been splashing the cash to move trucks. But GM also pushed 24% more cars off on rental fleets than it did in August of last year. GM has been cutting fleet sales back, but without the push last month overall sales would certainly have been weak.
AutoNation’s Jackson, who has become vocal as both critic and advocate for the auto industry, says fleet sales and rising incentives on certain key vehicles have masked consumer despair. The market is weak, he says, and the malaise will drag into next year without some help from the Federal Reserve. Consumers can’t cash out the equity on their homes for a new car. Those adjustable rate mortgages will keep adjusting higher into next year. Fatter interest payments make for tight consumers. “It’s a nitroglycerin combination,” Jackson says. “People don’t know how bad it is going to get.” Jackson has been raising a hue and cry to get the Federal Reserve to lower interest rates for some time. Even before August sales numbers came out, he said, “if we don’t see the federal funds rate cut, we could see a recession.” That would really undercut Detroit’s turnaround efforts. Pres. Bush says he doesn’t favor a bailout for any of the problems caused by the burst of the housing bubble. Fine. Jackson accurately points out that that Fed Chairman Ben Bernanke has the best card to play.