Consumer Car Buying Advice Blog

September sales figures are in for many of the manufacturers and the numbers are startling: Ford is down 34%, Toyota is off 32%, Honda sales are 24% below last September, while GM posted a 15.6% decline.

What do these sales figures mean?

You could begin by blaming the auto companies for building and relying too heavily on the sale of large pickup trucks and SUV’s. Those big body-on-frame vehicles with their thirsty V-8 engines are certainly partly to blame. But that certainly isn’t the whole story, since Honda’s sales were down by more than GM’s, and they have only unibody vehicles with, at the most, V-6 engines.

What about the economy?

At least for September, here at Auto Credit Express it certainly appears like the economy and consumer concerns about food and energy costs played a much more important part in consumer’s buying decisions. According to the most recent University of Michigan Consumer Confidence Survey, nine out of ten consumers in the month of September thought that the American economy was in a recession. During the last week of the month, 64% of participants expected a rising unemployment rate for the year ahead, up from 45% earlier in the month – certainly not a good omen for robust auto sales.

Don’t poor auto sales mean that it’s a buyer’s market?

In the past, that statement has certainly been true. After the 9/11 terrorist attacks, General Motors offered 0% financing on all its vehicles. The result was a hefty increase in sales and a quick return to profitability for GM. Unfortunately, the car companies are unable to do the same thing in today’s economic climate.

According to Charles Chesbrough, a senior economist with CSM consulting, “As shocking as today’s headlines are, the real story remains the very weak housing market, high fuel prices, inflation and the limited availability of credit.”

Funding sources dry up

There it is in a nutshell: As much as $4 per gallon gas has affected car sales, the root cause of falling vehicle sales (along with worries about the economy) is the current high cost of credit. Not only does this impact the manufacturers, but it also directly affects consumers.

A tightening of credit in the financial sector that it becomes more expensive for car companies and banks to borrow money. The domestic manufacturers have been hardest hit, because falling vehicle sales (Ford sales fell for the 10th straight month ) have caused their credit ratings to drop. This, in turn, makes it more expensive for the auto companies (and their captive finance divisions, in particular) to borrow the funds needed to finance everything from new vehicle programs to consumer loans.

For the average car buyer this means that even if you want to buy a car, there’s a good chance that your next car loan is going to cost you more money – no matter what your credit score is.

The Bottom Line

If you have good credit, you need to know that there are still good deals to be found. As you might expect, the bigger (and less fuel efficient) the vehicle, the more money you’ll save. If you are shopping for a small fuel-sipper, don’t be surprised if your new  loan costs you more than your last one did.

If you have less than perfect credit, be prepared to put down a larger down payment and to have the lender take a closer look at your FICO score and credit history.

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