Skidding car sales

Credit crisis makes many buy used or just ride it out

Keith Fleury and his wife, Megan, take delivery of a vehicle from Nilo Oliveira at Shaker Auto Group Mazda in Wellesley. (Aram Boghosian for the Boston Globe)

Last month Archana Joshi made a low-ball offer on a 2004 Honda Accord and was surprised when the dealership called to say it was considering accepting. But despite the discount price, Joshi walked away.

"The bailout program was just being announced, and the Dow was busy plunging, so I decided to hold off," said Joshi, 32, of Allston. "It's wiser for me to have my timing belt fixed and roll with my old, trusty Civic for a while."

Many other drivers are also opting to keep their aging cars on the road. Whether they can't get reasonable financing because of the frozen credit market or, like Joshi, they are waiting to see how prolonged the economic downturn will be, consumers are steering clear of auto showrooms. And those that do go shopping are often in the market only for used cars, despite a slew of manufacturer incentives on new vehicles. Last month, sales of new autos in the United States fell below 1 million for the first time since February 1993.

"The economic news is not bringing in as much showroom traffic as I'd like," said Paul Clark III, owner of Paul Clark Volkswagen in Boston. So far, Clark said, he hasn't had trouble getting loans for customers, but he - like most local dealers - isn't willing to predict how bad business might get in coming months.

Auto magnate Herb Chambers said sales at his dealerships were down last month and even slower so far in October, but the company isn't suffering from "the doom and gloom you read about in the papers and hear on the radio."

"Our traffic into the dealerships is about the same," Chambers said. "We're a bit behind on the deliveries, but we're not seeing a tremendous turndown rate of people with bad credit."

A report on Thursday from J.D. Power and Associates delivered more grim news: If you think 2008 is bad, wait until next year. The influential market-analysis firm slashed its forecast for US auto sales for 2008 from 14.2 million vehicles to 13.6 million - about 16 percent below last year - and predicted 2009 sales could sink to 13.2 million.

"The global market in 2009 may experience an outright collapse," said Jeff Schuster, executive director of automotive forecasting for J.D. Power. The report cited credit market restructuring, fewer leasing options, and declining vehicle equity as reasons.

Under pressure, US automakers are exploring their options. Chrysler LLC has been in merger talks with General Motors Corp. and others, while Ford Motor Co. is considering selling its stake in Japan's Mazda Motor Corp.

Dealers are also likely to get swept up in the industry's struggles. This month, Paul Taylor, chief economist for the National Automobile Dealers Association, said he expects 500 to 600 of its 20,770 member dealers to close, compared to 430 closures in 2007.

"The climate for auto financing, and for dealers, has changed forever," said Lee Domingue, chief executive of AppOne, a Baton Rouge, La.-based unit of Wolters Kluwer Financial Services, which works with independent auto dealers and finance companies. "The weaker dealers or the ones who don't have their act together are going to go away, and I don't necessarily see that as a bad thing."

In recent years, as many as 98 percent of new car purchases have been financed, according to Domingue. That option is no longer available for consumers whose credit is less than pristine.

GMAC LLC, the consumer finance arm of General Motors, said yesterday it will only make auto loans to customers with credit scores of at least 700, making it harder for some to buy a car or truck. GMAC also raised what it charges auto dealers for making loans that aren't part of special incentive programs, increasing the rate 0.75 percentage points, the company said.

"We're seeing longer terms on loans, and we're seeing the consumers being asked to put more money down - money which just isn't there," Domingue said. "That means dealers are having to cut profits and consumers are having to put more down upfront."

Average down payments on new vehicle purchases were $3,108 in September, up from $2,498 a year ago, according to data compiled by Edmunds.com. It marked the fourth straight month in which average down payments rose. Edmunds also found that dealer profits on the sales of new cars are as much as 25 percent lower this year compared with 2007.

Part of the reason is manufacturers' financing divisions have been increasing the interest rates they charge dealers for inventory, in response to the credit crunch. In other cases, lenders have simply stopped doing business with dealers. Capital One Financial Corp. said Friday that by the end of the month it will stop providing financing for dealers' inventories in New Jersey and New York. That followed a decision on Thursday by Alabama's largest bank, Regions Financial Corp., to stop issuing loans to about 2,600 dealers as of Jan. 1.

Locally, dealers said the tight financing has forced them to reconsider how they do business. Some are cutting expenses by trimming advertising budgets and trying to take advantage of the demand for more used cars.

To keep showrooms from resembling ghost towns, manufacturers are passing incentives through dealers. For instance, Steve Hurley, a sales manager at Copeland Toyota in Brockton, said in the 12 years he's worked for Toyota dealerships, he has never seen the company offer zero percent financing as the Japanese automaker is now doing in a current promotion.

"The flip side is we see some customers that are trying to take advantage of a down market," Hurley said. "The interest [in buying] may not be that pretty, but with the rebates and other options, the prices are good."

Darrell Bonanno, general manager of Shaker Auto Group Mazda in Wellesley, said he has put an emphasis on just moving cars off the lot.

"We've had to be a little more flexible and realize that when they walk into the showroom, the customer is in a different position than they were a year ago," Bonanno said.

Mark Pothier of the Globe staff contributed to this report. Material from Globe wire services was also used.