April 1, 2009 at 12:32 pm

Deals galore but consumers still wary

Dean Sellers Ford's Michael Hazergian, left, attends to customers Robert and Carol Carr in Troy on Tuesday. (John T. Greilick / The Detroit News)

Now is the time to buy a new car or truck with the announcement of new incentive programs from automakers and the government to entice buyers and reverse the downward spiral of auto sales.

But those programs might not be enough in a market ravaged by tight credit, high unemployment and weak consumer confidence, and they come too late to stem another month of plunging auto sales to be announced today.

"It's been a great time to buy a car all along," said Jim Hall of 2953 Analytics in Birmingham, but the problem is bigger than the auto industry alone. "People are deferring purchases for a bunch of reasons."

Nonetheless, the industry is banking on a number of initiatives announced this week to turnaround an auto sales market that has fallen 41.4 percent compared with last year.

General Motors Corp. and Ford Motor Co. on Tuesday unveiled incentive programs designed to offer insurance to nervous buyers by offering to make car payments should they lose their jobs. GM's program also protects the retail value of a new vehicle at trade-in.

The GM and Ford programs follow an initiative by Hyundai Motor Co. in January that allows customers to return new cars if they lose their job. In February, when the competition was reporting sales down as much as 53 percent, Hyundai was off less than 2 percent.

President Barack Obama this week further sweetened the pot in announcing that the government will back the warranties of GM and Chrysler LLC vehicles in the event either automaker fails.

Obama also said Monday that the Internal Revenue Service is launching a campaign to alert consumers of a benefit that allows them to deduct sales and excise taxes on the purchase of a new car from Feb. 16 to the end of the year, which he said could lead to as many as 100,000 new car sales.

And the president said he wants to fund a "cash for clunkers" program, similar to one in Germany that pays consumers to scrap their old vehicles for new, more fuel-efficient ones. Under proposed U.S. legislation, consumers would receive a voucher worth between $3,000 and $5,000 toward a new car.

But analysts say the enticements are unlikely to spur consumers worried about job security or bemoaning the drop in value of retirement savings plans.

"The story of the industry continues to be a widespread reluctance to purchase durable goods," said analyst Brian Johnson of Barclays Capital.

Talk of a possible bankruptcy of GM or Chrysler has exacerbated problems.So far this year, GM's sales are down by more than half, compared with the market's overall 39 percent decline, and GM's share of the market has dropped to 18.2 percent from 22.7 percent a year ago. Chrysler had had the most severe sales drop, down 49.1 percent so far this year, but its incentives at an average of more than $5,600 on vehicles stemmed the tide a bit in February as Chrysler sales fell less than those of GM or Ford.

Japan's top three automakers have also seen U.S. sales plunge. But they have gained a combined 1.6 points of market share in the first two months of 2009, and analysts expect them to keep clawing share as the Detroit Three struggle.

But sales of Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. brand vehicles are expected to be down by as much as 45 percent in March, Barclays forecasts, despite the fact that their credit companies have not been squeezed in the same way as the finance arms of GM and Chrysler, nor have they had to deal with questions about their long-term viability.

Johnson cited the continued deterioration of consumer confidence and tight credit for stifling retail sales, on top of the deliberate cutting back of fleet sales by automakers. The sales figures are "casting doubt once again on where the floor could be for the industry's downturn, absent any direct stimulus from the government."

"This is a disappointing way to kick off the typically robust spring selling season," said analyst Jesse Toprak of Edmunds.com.

A third of total sales occur from April to the end of June, said Michael Robinet, vice president of global vehicle for CSM Worldwide in Northville.

Members of Congress planned a news conference today to press for a cash-for-clunkers incentive, in the face of what's expected to be very grim March auto sales.

Johnson said a program similar to the one running in Germany "has the potential to boost sales materially very quickly" -- 2.5 million vehicles, if 2 percent of eligible vehicles participated.

Gov. Jennifer Granholm on Tuesday said there "has to be a very aggressive plan to create demand to buy cars," and the government must set an example by adopting a strong "buy American" stance.

The collective initiatives might draw a buyer who has been considering a new car purchase, Robinet said, but won't substantially move the needle. "In the end the economy and personal situation will dictate whether they will purchase a vehicle."

Since sales began nose-diving in the fourth quarter of 2008, automakers have rolled out all kinds of programs, including zero-percent financing, employee pricing and deep discounts, but it has done little to slow the fall.

"After a while, all the zero-percent financing offers start to sound the same. All the cash incentives start to sound the same. All the employee pricing deals start to sound the same. It's a way of rising above the noise," said George Pipas, head of sales analysis for Ford, referring to Hyundai's program.

But buyers, in the end, "need supreme confidence in the economy of the United States and that won't change due to programs," Hall said.

Christine Tierney and Bryce Hoffman contributed.

IRS tax rebate

  • Car buyers can deduct sales and excise taxes on new car purchases
  • Program runs through the end of the year
  • The Obama Administration says this could lead to as many as 100,000 new car sales

  • Warranty guarantee

  • Consumers who buy a new GM or Chrysler vehicle while the companies are restructuring will get government back warrantees
  • The U.S. Treasury will guarantee the warrantees if either company fails
  • Any domestic automaker is eligible to participate, but those automakers must contribute to a fund to help cover the costs

  • Ford Motor Co. 'Advantage Plan'

  • Ford will cover payments up to $700 a month for up to 12 months on any new Ford, Lincoln or Mercury vehicle if customers lose their job
  • Program runs through June 1
  • Zero-percent financing on select vehicles

  • General Motors Corp. 'Total Confidence' plan

  • Payment protection for first 24 months of ownership, up to $500 a month
  • Finance a new GM vehicle and the company will help protect its retail value at trade-in on next GM vehicle
  • One year of OnStar Safety and Security package
  • Fully backed, 5 year/100,000 mile limited powertrain warranty with roadside assistance and courtesy transportation
    Source: Ford, GM, Obama administration, Detroit News research