Fed Rate Cuts, Stimulus Package Could Benefit Auto Sales, GM Says
February 01, 2008

A General Motors analysis shows Americans will quickly spend a big chunk of the rebate checks they receive under the economic-stimulus package proposed by the federal government and expected to be passed soon by Congress.

And they may well spend some of it on cars.

Mike DiGiovanni, GM’s executive director of global market and industry analysis, said during a Friday conference call with analysts and media regarding January car sales that GM’s analysis shows Americans will spend about 40 percent of their rebate checks within the first four months of receiving them. Rebates are expected to range from $300 to $1,500, depending on income.

Even more important is the psychological boost the economic-stimulus package and the recent interest-rate cuts by the fed deliver, he said.

“Low-income working Americans will get the biggest boost from the economic-stimulus package, and they have been the most hurt by high fuel and high food prices,” said DiGiovanni.

The recent lowering of interest rates may have an even quicker impact, he said, especially for people whose adjustable-rate mortgages are about to be reset. They now will reset to more-attractive rates than they would have before the Fed’s moves.

“The greater impact is with interest rates,” said Mark LaNeve, GM North America’s vice president of vehicle sales, on the call. “It goes right to consumer confidence, which is key in the automobile business, to improve the consumer’s outlook for job security and income growth. The psychological impact of that is immediate.”

It also lowers borrowing costs for car dealers, who may pass those saving onto consumers.

The stimulus package includes some incentives for business, which should help as well in job security and job growth. DiGiovanni noted generally businesses have low inventories so they are poised for growth. And aside from the financial sector, most corporate earnings are relatively healthy.

The interest-rate cuts and stimulus package, and their subsequent effects, should take hold in the third quarter of this year, DiGiovanni said, helping auto sales. GM has long been predicting the second half of 2008 will be stronger than the first half.

“So while the financial markets remain nervous and some volatility will continue for awhile, the complete freeze of the credit markets is less likely now and will provide support for the fragile consumer confidence first half and the stimulus package for the second half,” said DiGiovanni. “We’re planning our business accordingly.”

Posted by Michelle Krebs at 12:09 PM under Analysis , GM | Comments (0) | digg this | Seed Newsvine