A car buyer's market … kind of

LIMA - There's a metaphor here somewhere.

Gina Daily is wandering through rows of cars early Tuesday morning at Tom Ahl's Cable Road lot. It's a few hours until the shop opens and the cars have yet to be cleared, so it's a struggle to read prices through the ice-covered windows. She squints and scrapes and slips her way through the icy lot in search of the perfect deal. But in truth, she knows she won't be getting a new car.

 "It doesn't really matter what it cost, I can't buy anything now anyway. I'm just checking and I'm dreaming."

The dream of purchasing a new car, if not exactly dead, is certainly on life support. At a time when buying bread and milk is a challenge for many families, the big ticket items are out of the question, and cars are about as big as the ticket gets. It's a reality that hit buyers hard this year, and it has hit local dealers even harder.

"They've (sales) gone way, way down. For us, they've been dropping ever since the gas prices started going out of sight. It's been pretty drastic," said Bill Timmermeister, owner of the Lima Auto Mall.

Numbers tell the tale

Automakers from around the world are gathering in Detroit this week for the North American International Car Show. They will put on smiles and talk about the latest innovations and the shiny future of the industry. But the real story won't show up on the showroom floor, but instead on the ledgers of local dealers.

Just last week, automakers announced that U.S. sales dropped to 13.2 million in 2008, down 18 percent from 16.1 million in 2007. Consulting firm IHS Global Insight predicts U.S. sales will drop to 10.3 million this year as the economy continues to sputter.

 In December alone, U.S. sales plunged 36 percent.

Chrysler saw the worst declines of the major automakers, reporting a drop of 30 percent for the year and a whopping 53 percent decline in sales when comparing December 2007 to December 2008. But Chrysler is certainly not alone. GM's sales declined 29 percent over the last year. Ford's fell 21 percent.

Even the seemingly immune Japanese companies reported drops by year's end.

Toyota and Honda Motor Co., which earlier in the year had seen increases, saw declines in December that were larger than their U.S.-based competitors. Toyota was down 37 percent and Honda 35 percent, compared with Ford Motor Co.'s 32 percent drop and GM's 31 percent slide. Nissan Motor Co. sales also dropped 31 percent.

"There is absolutely no question the pain is across the board at this point in the game. Every company, absolutely everybody, is posting losses right now," said Martin Dufresne, an industry analyst for Motorway Press.

Local car shopping

The news isn't much better closer to home.

Autoview Online collects sales figures from dealers around Ohio. In the eight-county area that makes up the Lima media market, it reports 46,676 cars sold in 2008, compared to 50,456 in 2007. That's a decline of 3,780 cars in a year.

The real hit came in November, when sales dipped by 1,247 cars - close to a third of the year's losses in just one month.

Lima Auto Mall's sales went down by 85 cars in 2008, from 1,639 to 1,554 cars sold. But in November, the dealership sold just 54 cars, about half of the 119 cars sold in the same month of 2007.

"Even the lots that managed to maintain fairly steady sales at the first half of the year got hit in October and November. You look at the numbers and they don't lie," Dufresne said.

The numbers may not lie, but they don't tell the whole story, either. For dealers, how many cars they sell is just half the equation. What they actually get for them is the other.

"For us, in the used-car side, sales haven't gone way down, but our margins have. We made the decision to get the prices down to sell them, so we're making less money," said Brad Spoon, used car sales manager at Graff Chevrolet, in Ottawa.

Graff is one of the few dealers that actually saw sales increase last year, up 11 cars from 605 in 2007 to 616 in 2008. But the great majority of those, 416 cars, were used, signaling a possible change in the way people are shopping.

"You can have promotions and incentives to get them in the door, but if you don't have the car they want and the right price, it doesn't do you any good," Spoon said.

A buyer's market

There's no question it's a buyers market. And dealers who can lure the buyers who are out there are still selling cars. Tom Ahl has hosted a variety of sales promotions at his three area dealerships . Customers are biting.  

"The value has just been incredible. We're offering year-old cars for under half price. The consumers are winning huge," Ahl said.

Ahl said his dealership had its best month ever in December, selling 541 cars. The downside of that is that, come spring when the buyers come out in force, there may be too few used cars to go around.

"I think we're going to face a huge shortage of used cars next spring. People just aren't trading them in," Ahl said.

Slashing prices may be the most effective way to draw car buyers, but it's certainly not the only thing car companies and dealers are trying. The decline in sales has been accompanied by record high rebates and low-interest financing deals. Ford and GM are offering employee pricing, meaning buyers can get a car for the same price a company employee pays. Others are offering extended warranties. Hyundai Motor America has gone so far as to promise to let buyers return cars if they lose their jobs and can't make the payments during their first year of ownership.

Local dealers are also being creative.

In December, Tom Ahl held a "Red Friday" event where 15 previously owned 2008 Sonatas were priced at $9,755, beginning at 6 a.m. Every half hour, the price went up $200. The cars left the lot quickly, with 13 selling in the first 35 minutes and the last two a couple of hours later.

The Sonatas retail for more than $15,000, so Ahl took a loss on the cars. However, the vehicles had been on the lot for a couple of months and he wanted them moved. The event also created some enthusiasm.

 "My wife and I were talking: You always see Black Friday, and so we thought we'd do a Red Friday," Ahl told The Lima News afterward, adding he "wanted a ‘knock your socks off' price" so he settled on $9,755.

Still, all the tricks and incentives in the world won't move a buyer if a dealer doesn't have the car he wants, Timmermeister said.

 "We've gotten to where as Americans we want what we want. For a long time, that meant bigger vehicles, trucks and SUVs. And we've gotten into a system where we've developed business that has profited from these things. People aren't completely turning away from those things, but it is changing," Timmermeister said.

The most obvious change has been the shift to smaller, more efficient cars. In recent years, American consumers developed a taste for big trucks and SUVs. And American car companies were happy to oblige. But about the time gas hit $4 a gallon in mid-summer, buyer remorse set in and the Big Three - slow to move away from high margin truck sales - took the hit, sometimes unfairly.

"People who just for convenience wanted a big SUV so they could haul eight or nine people around are starting to look at smaller models. And I think the companies have those cars out there. I think GM is making wonderful merchandise right now, and they have what people want," Timmermeister said.

Timmermeister points out the Chevy Malibu, a mid-sized sedan that beat out Honda and Toyota for Car of the Year at this week's North American International Car Show. He also mentioned the new hybrid Cadillac Escalade, a large SUV capable of 20 mpg in the city, compared to about 12 for its traditional counterpart.

"The cars are so much better. We're asking why they didn't do this 20 years ago. It's a shame if they don't get to play out their hand," Timmermeister said.

Changes to come

Those dwindling sales figures translate to real troubles for an already reeling auto industry. In December, GM received $13.4 billion in loans from the federal government to stay in business, and other manufacturers and dealers are hoping for more help once President-elect Barack Obama takes office.

"We don't know how kindly GM and the other guys are going to be treated by the new Congress, but there has to be a deal of some sort worked out," Timmermeister said.

In the meantime, the previous federal bailout for banks slowly has begun to show in the local market. After months of tight credit and loan stipulations that kept many buyers out of the market, things are starting to loosen up.

"They're still not as loose as they were before, but they are significantly better," Timmermeister said.

Before the bailout, banks were clinging to cash to the point where even buyers with good credit were having a tough time finding money. That's changed some. GMAC, the credit arm of General Motors, recently lowered its credit rating requirements from 700 to 621, meaning those with good to moderate credit ratings can get a loan. But that still doesn't mean the loans are the same as they were a year ago.

"Banks never really stopped lending money; they just got stricter with their requirements. We're seeing more of a need for down payments and, in a lot of cases, we can't do the deals we could six or eight months ago," Spoon said.

The options for those with poor credit are even slimmer. As recently as last spring, a buyer with a job but low credit score still could drive away with a car, albeit at a higher interest rate. Options still exist, but they're tougher to come by.

"There are still ways that people with miserable or no credit can get money, but they're not ways most dealers chose to participate in," Timmermeister said.

For Graff Chevrolet, those so-called subprime buyers made up about 15 percent of business, Spoon said. Those customers still can buy, but like everyone else, increasingly need to put money down or deal with other restrictions.

And that may not be all bad. If the problems in the banking and auto market are the result of years of increasingly easy money, a little tightening may be just what's needed for the long haul, Spoon said.

"Maybe we're righting the ship. I think it went too far before, got too tight, but now it's coming back to center where it should be," Spoon said. "It's different, but maybe it should be."

---

Total car sales in Ohio

2006 - 1,350,370

2007 - 1,341,332

2008 - 1,231,380

Decline in sales from 2006 through 2008 - 118,990

Total care sales in eight county Lima market

2006 - 51,727

2007 - 50,456

2008 - 46,676

Decline in sales from 2006 through 2008 - 5,051

Source: Autoviewonline.com