Key Change In Auto Lending Psychology

Tucked away in a Dismal Forecast For Car Sales is a key change in auto lending psychology. Let's take a look.

The American auto industry is bracing for what may be its worst year in a decade. Several industry forecasters have sharply cut their projections for new-vehicle sales to less than 15.5 million this year, and abandoned rosy predictions for a rebound in the second half.

The broader economic woes prompted the marketing firm J. D. Power & Associates to cut its annual forecast to 14.95 million vehicles, from 15.7 million � the lowest sales level since 1995.

�The auto market is entering into a true recessionary phase, which is something we have not seen in the last 10 years,� said Bob Schnorbus, the firm�s chief economist.

With consumers short of cash and deep in debt, many prospective buyers are finding it difficult to secure financing for a new car. Automotive finance companies are fearful of repeating the mistakes of subprime lenders in the housing industry and are generally declining to make risky vehicle loans.

�We are faced with the dilemma of lowering our credit standards to put them in a car, or saying no,� said Michael J. Jackson, chairman of AutoNation, the largest auto retailer in the United States. �And we�re telling them no.�

�We expect incentives to go up and go up soon,� said Jesse Toprak, executive director for industry analysis for the buying guide site Edmunds.com. �We might even reach record numbers.�

Here's The Deal

• Customers are holding out for better deals.
  
• Dealers are holding out for better customers.

That's a rather a nasty brew, and inflation sure isn't in the mix.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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