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Behind The Wheel

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Oct.02

10:56 AM ET

Thursday, 2 Oct 2008

Some Of You Don't Believe Credit Crunch Hurts Auto Sales

Posted By:Phil LeBeau

Sectors:Technology | Automobiles and Parts

Over the last two weeks I've done several reports on TV and written in this blog about tighter credit hurting auto sales.

For the industry, September sales dropped 27% and nearly everyone in the industry admits that a big reason for the plunge has been the deteriorating credit markets.

It's tougher to write auto loans and the interest rate for loans has jumped 1/2 to 3/4 of a percent in the last couple of weeks. That said, some of you have e-mailed me that you doubt the credit crunch is chewing up possible sales.

Behind the Wheel Comments:

Jeff e-mailed me, " I don’t think consumers are worried about what interest rate they’d get under the current financial situation, they are worried about whether they’ll have a job a year from now to make payments. There is such an air of uncertainty that everyone is freezing because many people are unsure they’ll be working at their present position 6 months, a year, or a year and half from now."

Jeff has a point. This is a bit of a chicken and egg question. Are potential buyers spooked about the economy and steering clear of showrooms. Or are they also worried that the tighter credit markets makes it costlier to borrow through not only auto loans, but also home equity loans (remember, home equity loans are still a primary source of funding a large percentage of vehicle purchases).

Auto Sales Numbers: No One's Even Looking To Buy

Lorraine suggests the issue is the type of car that's available right now. She writes, "Have you ever thought that car sales are plummeting also because people are waiting for the electric car? ....Of course the market conditions are sour, but the losses in sales you see are not all about the "credit crunch". Why would someone invest in a car now, with the new technology waiting in the wings? ....If the electric car was rolled out right now, you would see a staggering amount of demand."

I don't buy this. I suspect that if there was a sizable number of electric cars in showrooms right now, sales would still be weak. Yes, there is a segment of the population waiting for the Chevy Volt and other electric models in 2010, but I think most buyers are being swayed not to buy because of economic conditions, not the type of vehicle available.

Finally, Bill writes, "I'll bet you if put up a sign at all the local auto dealers stating "we have a car that gets 80 mpg (and you can back it up)" the showrooms would not be empty any longer."

Maybe. But this is similar to the argument about electric cars. If there is car that gets incredible mileage on sale, but for a relatively high sticker price, I question how many would be sold. I have no doubt there is a hunger for more fuel efficient vehicles that are not as costly to run. However, if it costs buyers substantially more than a standard model, then the standard model will still be the one that rolls off the lot.