Fed Rate Cut to Boost Auto Sales: Chrysler CEO

Chrysler Chief Executive Bob Nardelli said the Federal Reserve's emergency 75 basis point rate cut would help consumer confidence and boost auto sales in 2008.

2007 Chrysler Pacifica
Source: chrysler.com
2007 Chrysler Pacifica

"We are very pleased with the cut," Nardelli told reporters on the sidelines of the Automotive News World Congress on Tuesday. "It demonstrates a tremendous awareness that we need to improve some liquidity."

Earlier on Tuesday, the U.S. Federal Reserve cut interest rates by three-quarters of a percentage point to 3.5 percent in an effort to save the economy from a recession.

"For us, for the auto industry, it gives the auto financing companies the ability to really bring some more credit into the marketplace...it's going to help consumer confidence."

Nardelli, who has predicted industrywide sales of 15.5 million to 16 million vehicles for 2008, said the move could help U.S. auto sales climb above the 16 million mark this year.

"It could. That would be great," Nardelli said. "If it gets better...the auto industry will be very happy. It will give us some robustness, it will give us some wind in our sail to go through 2008.

U.S. auto sales fell for the second consecutive year in 2007, dragged down by a slowing economy, a slumping housing market and tighter credit markets that pinched less credit-worthy borrowers.

Full-year 2007 sales dropped almost 3 percent to 16.14 million vehicles, the lowest since 1998.

While the consensus view among Wall Street analysts and high-profile investors points to a further decline in auto sales in the world's single-largest market in 2008, there is still a debate about how deep it will go -- especially if the U.S. economy tipped into recession.

Earlier on Tuesday, Ford Motor Chief Executive Alan Mulally said the Fed's interest-rate cut -- which was its largest in more than two decades -- was a "positive" for the auto industry.

The Fed's decision to "move decisively like this is very positive for all of us," Mulally said, speaking on the sidelines of the same conference.

But billionaire distressed investor Wilbur Ross told the conference the United States appeared to be slipping into a consumer-led recession despite the rate cut.

Industry experts and analysts have said the Detroit automakers -- General Motors , Ford and Chrysler -- will face increasing competition in 2008 and be forced to boost incentives to maintain sales volume amid weak consumer confidence.

All three automakers had been calling for a rate cut to boost confidence among U.S. consumers -- many of whom have been deferring purchases of big-ticket items such as vehicles.