Behind the Wheel with Phil Lebeau

Auto Industry Blues: Here's Why Things Are So Bad

So I come back from vacation, and while I feel refreshed, I find most of the folks I deal with in the auto industry are tired, sluggish, and looking for a break. I can't blame them. This is a rough time in the car biz, and I don't think it will get better.

Look at the things hitting the industry.

1. Gas prices. It was $3.45 a gallon yesterday in suburban Chicago, which means I dropped over $50 to fill up a near-empty tank. No wonder the guy at the pump next to me looked over, exhaled in frustration and said, "This sucks." You are darn right my brother. And it's only going to get worse. If prices rise to almost $4.00 a gallon, car buyers are going to automatically write-off many models.

2. Incentives lacking power. In past downturns, automakers found a way to get even the most pessimistic into showrooms. Not anymore. As one dealer told me recently, "It's tougher to close a sale."

For many potential buyers, the thought of of signing up to re-pay a loan of $20-40K seems absurd with the economy stalling. While unemployment is still low, the weak jobs reports are, in my opinion, spooking many people. Throw in falling home prices, and you see why consumer confidence is low.

3. Buzz Power has stalled. Remember when I asked you a few weeks ago about what car has "buzz" right now? Well, the number one answer was for a car that's not even built yet, and won't be sold in this country. It's the Nano by India's Tata . The second most "buzz-worthy" model is also not yet built: GM's Chevy Volt. The fact that 2 cars promising great mileage are what people are jazzed about says a lot about the state of mass market car biz right now. Call it the "vanilla-fication" of the auto industry. It's all very similar, very safe, and one reason few feel compelled to buy right now.

Sorry to return and be a buzz-killer. But that's where we are. The good news is that slow periods like this have a way of ending with a flurry of new models and sales that finally spur people into new rides. I just don't see that happening anytime soon.

Questions?  Comments?