| Lower Auto Loan Market |
| By Credit Federal |
Published
05/21/2007
|
Auto Loan
|
|
|
|
|
Lower Auto Loan Market
The drop in auto sales and auto loan activity was felt hardest in California and Florida, two states also suffering the worst of the housing downturn.
The weak housing market; apparently, is eating into vehicle sales in two important ways.
First, consumers who had been tapping their home equity to buy cars during the housing boom are less apt to do so when the real estate market is soft. The shaky housing market also is having a psychological effect.
"There's consumer uncertainty. Housing is really having a big impact," said Jesse Toprak, executive director for industry analysis at the Edmunds.com car buying Web site.
Second, building contractors are buying fewer pickups, vans and other vehicles - a major part of the market - for their fleets.
"Suddenly your homes aren't selling - the last thing you're going to do is go out and buy another truck," said Ron Pinelli, president of Autodata Corp., a market research firm based in New Jersey.
Beutler Corp., a Sacramento, California based heating and cooling contractor, normally buys 20 or 30 pickups and other vehicles a year. But this year, Beutler might not buy any - not after having trimmed its payroll in half, to about 900 workers, since 2005.
"You don't need new trucks for expansion," said Rick Wylie, the contracting firm's president.
Although state-by-state figures for April aren't yet available, analysts say the biggest dropoff in auto sales is occurring where housing has taken the biggest tumble. Through February, the most recent data available, car sales in California were down 3.1 percent compared with the previous year's figures, according to the state Department of Finance.
Auto analyst Art Spinella, head of Oregon-based CNW Marketing Research Inc., said California and Florida account for "the vast bulk of the decline" in the nation's vehicle sales in April.
"So many car sales in California are home equity-based," Spinella said. "Less equity, less money."
Many analysts say the auto industry's struggles are a kind of testament to the power of the housing boom. The increase in market values created a gigantic wealth effect among homeowners, many of whom tapped into their home equity for cash.
Cash generated by housing - from home-equity loans, refinancings and outright sales - accounted for $182 billion in consumer spending in 2005, according to a just-released report by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy. That accounted for about 3 percent of all consumer spending, the study said.
By contrast, cash from housing totaled just $64 billion in 2000, the study said. Now fewer homeowners are using their houses as cash machines.
"Nobody can pull money out of their houses so nobody has the cash to buy a new car," said Chris Thornberg of consulting firm Beacon Economics in Los Angeles. "That was the game."
The record-setting stock market notwithstanding, Thornberg said there's evidence the economy is tailing off. "Consumers have finally run out of steam," he said.
Get the inside secrets on how to get the best car dealership loan deal and to avoid common negotiation blocks.
|
Email this article to a friend - click here
Webmasters: Free Credit Content for Your Website!
Multiple ways to use our financial content:
*) You can use our RSS Feeds for automatic insertion and updates
*) You can simply link to this article
