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AutoNation Sees Recession Without Rate Cut

Car dealership group AutoNation Chief Executive Mike Jackson said Tuesday the U.S. economy is in danger of slipping into a recession unless the Federal Reserve moves aggressively to cut interest rates.

"I think we are at a tipping point," Jackson told Reuters in an interview. "They have to recognize that they are bringing into play a recession for this economy.

"They need to begin to cut rates, not just once but several times," he said of U.S. monetary policy makers. Jackson, who runs the largest publicly traded car dealership group in the United States, said the pressure on the economy is hurting auto sales.

He now expects U.S. industry-wide sales to slip to 16 million light vehicles this year.

Jackson said showroom sales will slip significantly this year because of a pullback in consumer spending.

U.S. auto sales have been hurt by the weak housing market, gasoline prices and tough competition. Weak housing starts have also sapped demand for high-margin pickup trucks, which are typically bought by construction workers.

Falling U.S. home prices have hurt U.S. vehicle sales in California and Florida in particular, as consumers decided to defer large purchases, Jackson said.

"There is no question that the states that have the most depreciation in housing are paying the biggest price," he said, adding that California and Florida are seeing a 15 percent drop in retail vehicle sales.

Jackson said AutoNation is planning to weather the downturn by keeping its inventory lean and ordering fewer vehicles from automakers.

"We are going to remain conservative until we see where the turning point is going to be," he said.

While U.S. automakers had held out hope for flat or slightly higher sales this year, a downturn that began in the spring forced both GM and Ford to cut their industry sales outlooks for the year.

Jackson said the economy needs a cumulative 2 percentage point cut in the Federal funds target rate, essentially unwinding about half of Fed's tightening that began in June 2004.

The current Federal funds target rate is at 5.25 percent.

"I thought that we would have had rate cuts by now," Jackson said. "I am surprised by how long the Federal Reserve is waiting."