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Attack hits weak auto sales
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September 21, 2001: 4:29 p.m. ET
GM, Ford respond with new incentives to keep nervous consumers buying
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Automakers, dealers and analysts believe that the sharp drop in auto sales due to last week's terrorist attack will be temporary, but any further decline in the economy and consumer confidence will be bad news for an already struggling industry.
Sales at auto dealers were down more than a third last Tuesday and Wednesday, according to some of the available sales figures. There have been some signs of recovery already, but not enough to stop September from being the worst sales month for autos in many years.
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Sales at U.S. car dealers fell by more than 30 percent in the wake of last week's terrorist attack, but are starting to show signs of a rebound. | |
"We had been projecting an (annual) sales rate of 16 million vehicles in September," said Bob Schnorbus, chief economist JD Power, which tracks sales from more than 5,000 dealers. "If I take out a third of sales for only a two week period, you still come out with an eye-popping 13.3 million sales rate; 13.3 million is about as low as sales ever get."
Schnorbus said the decline has been uniform across all the different automakers and all the different types of models.
Automakers admit they don't know how the attack will affect sales for the remainder of the year and into next year. While GM has said it believes it will meet production, sales and profit targets for this quarter, it said it can't give guidance past that. And Ford has warned it would miss its already lowered third quarter guidance, although that's partly because security measures at the Canadian-U.S. border delayed the delivery of engines and other parts needed by U.S. assembly plants.
"I think the outlook is very cloudy," said George Pipas, manager of sales analysis for Ford Motor Co. (F: down $0.15 to $15.34, Research, Estimates) "It's difficult for anyone to assess what the impacts of these events, particularly when we were confronted with an economy in a pretty fragile condition."
Theo Wright, the chief financial officer for Sonic Automotive Inc. (SAH: down $0.90 to $10.90, Research, Estimates), which owns 115 dealerships in 13 states, said that for the most part its sales traffic is getting back to pre-attack levels.
"The only exceptions are towns with large military presence," he said. "In Pensacola, Fla., for example, they're worried about being shipped out, not buying a car."
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GM and Ford have offered interest-free financing to try to keep nervous consumers in shopping for new cars. | |
The automakers have responded with a rush of new incentives to try to keep customers coming into the showrooms. General Motors Corp. (GM: down $0.45 to $40.25, Research, Estimates) announced Wednesday that it would offer interest-free financing on all 2001 and many 2002 models. On Thursday it took the unusual step of extending the offer to business buyers as well. Ford Thursday matched the offer for consumers financing over only three years.
He said that incentives may end up giving dealers a decent sales year and keep total vehicle sales close to in line with estimates for the year. But those incentives will be further bad news for the profitability of automakers, who have already seen profits either drop sharply or disappear completely.
The key, all the observers believe, is what happens to consumer confidence, which normally tracks very closely to auto sales. Factors such as the stock market performance and the unemployment rate will greatly affect consumer confidence and the decision to make new-car purchases, according to the analysts.
"Even when we get hit by these shocks, confidence does bounce back," said Schnorbus. "But because we seem to be moving into a recession, consumer confidence will probably weaken after any initial rebound as they have to deal with stock market and layoffs and recession."
The airline industry has already announced layoffs of about 100,000 relatively well-paid employees due to that industry's economic crisis, and even more jobs at airline suppliers are on the line. Still, unemployment had been steadily rising even before the attack, and had already been factored into the production plans of major automakers.
"Our base planning assumption was not predicated on unemployment going down," said Ford's Pipas. "We did see it rising to 5 percent by year's end. Now speculation is that it will go beyond that.
"The tragedy itself is difficult to assess, and so is the direction of the economy," he said. 
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