U.S. Auto Sales Hit 27-Year Low

With the exception of Subaru, Hyundai, and Kia, sales plummeted in January. Could the stimulus plan stabilize the market by yearend?

By David Kiley

It's not just Detroit that's in trouble. The water's also falling on the floor in Stuttgart, Munich, Toyota City, and other automotive manufacturing centers around the world. That's because for the first month of 2009 Americans bought cars at an annualized rate of 9.57 million, the worst level for January—typically a weak month—since 1963 and the worst monthly selling rate since 1982. Industry laggards General Motors (GM) and Chrysler led the losing with sales that fell 48% and 55%, respectively. Ford's (F) sales plunged 40%, while several Asian automakers reported big drops as well.

Record low consumer confidence, stingy lenders, and a deep decline in demand among fleet buyers such as rental car companies have kept auto sales in the tank. While carmakers say some banks are starting to loosen their lending standards, it hasn't been enough to jump-start car sales stalled since last fall by the collapse of credit and stock markets. "Our business is based on credit more than any other industry," says Mike DiGiovanni, executive director of global market analysis at GM.

Opening the GMAC Loan Spigot

Automakers are bracing for poor sales, but they're hoping that banks are starting to make more loans. GMAC Financial Services, for example, got $6 billion in new cash from the Treasury Dept. in December and was granted status as a bank holding company. That gives the lender access to more funds so it can make more car loans.

GM is just beginning to see the benefits, said Mark LaNeve, vice-president for sales and marketing at GM North America. LaNeve said GMAC financed 5,000 new-car sales in January. That's not much, but the lender wrote even fewer new loans in December. Dealers said that late in January, GMAC turned on the lending again. In the last week of the month, "we saw GMAC doing loans that we haven't seen for a while," said Jim Hardick, a part owner of Moritz Chevrolet in Fort Worth.

The U.S. Senate may have given the industry another shot in the arm on Feb. 3 when it passed a measure in the economic stimulus bill that would make auto loan interest and sales tax deductible on federal income taxes. The measure has a good chance of being in the final bill to be signed by President Obama.

GM and Chrysler, hardest hit by the lack of available credit, usually combine for between 30% and 35% of U.S. auto sales, so their sales declines are widely felt.

Some Winners Amid the Pain

Toyota's (TM) sales dropped 32% for the month, and Honda's (HMC) fell 28%. Subaru bucked the trend of declines for a second straight month, posting an 8% sales increase, while Korean automakers Hyundai and Kia posted increases of 14% and 3.5%, respectively.