October Sales Remain in Freefall; Zero Interest Financing Provides Little Lift
October 10, 2008

By Michelle Krebs

SANTA MONICA, Calif. -- October automotive sales continue to be in freefall from September with zero percent financing offered by auto manufacturers providing little, if any, incentive for people to buy cars, according to the latest data from Edmunds.com, parent of AutoObserver.com.

"The automotive market slowdown has entered a new phase," said Edmunds.com Chief Executive Officer Jeremy Anwyl. "Barraged by bad economic news, consumers, instead of hoping for the best, now are preparing for the worst, and that includes postponing even the thought of buying a car."

For automakers, the old tricks don't work. Even attractive promotions like the numerous zero percent financing programs, including the unprecedented Toyota deal of 11 models for zero percent, are ignored by consumers, who are not in car-buying mode.

"In this environment, incentive offers that used to be compelling don't work; they are just a distraction," said Anwyl. "A zero percent promotion amidst the din of bad news from around the world flowing over the airwaves and Internet falls on deaf ears."

That kind of fundamental shift in consumer confidence is difficult to overcome. "Until consumers are convinced the economy is on stable footing, a sharp and lengthy recession looks inevitable," he said.

"It's ominous for automakers because there's not much they can do about it," said Anwyl. He likens it to the lack of positive impact the $700 billion rescue or the interest rate cut has had on global financial markets.  

Sales Tempo Slows

Jesse Toprak, Edmunds' executive director of industry analysis, predicted, after automakers reported September sales, October sales would be off 15 percent from a year ago.

Edmunds' purchase intent data shows a 20 percent decline the first week of October versus the first week of September. That's double the typical seasonal drop of 10 percent between those weeks.

And the early part of September was the strongest part of the month; the last 10 days of the September, when dealers reported showroom traffic was virtually nonexistent, pulled sales for the full month down 26 percent from the year-ago month. Edmunds' data shows the sales rate for the first week of October was 5 percent lower than the first and middle part of September.

Even the compact-car segment, which has been a recent bright spot in the market, is down 17 percent.

Edmunds' purchase intent data is based on vehicle configurations on Edmunds.com. Edmunds studies have shown that there is a strong correlation between configuring a vehicle on the site and going through with a real-world purchase.

Toyota's Zero Percent: Mixed Results

September was disastrous for Toyota. Its sales nosedived nearly 30 percent from September last year (on an adjusted basis; 32 percent unadjusted). It was Toyota's steepest decline since the 1980s and deepened the company's poor performance for the year so far.

Its abysmal sales prompted Toyota to immediately offer an unprecedented promotion: zero-percent financing on 11 vehicles, including 2009 models. Other auto manufacturers are offering no-interest financing but largely on leftover 2008 models.

Despite this historic move, however, Edmunds.com data suggests even zero percent financing has not revitalized its sales significantly. In total, purchase intent for Toyota in the early days of October is down 3 percent (7 percent on a seasonally adjusted basis), according to Edmunds' data.

"Toyota looked unstoppable last year, and now the company is offering zero percent financing; it's a reflection of how bad things really are," said Jesse Toprak, Edmunds.com executive director of industry analysis. "And the offer is unlikely to turn around the market, especially since the domestics have been offering zero percent financing for some time with no effect."

The zero percent deal has lifted purchase intent of only four of the 11 models covered by the deal, albeit Toyota's bread-and-butter models that needed it most.

Specifically, Camry and Corolla, which Toyota claims was in short supply but more inventory is enroute, experienced a September sales decline of 24 percent to 25 percent. Edmunds.com purchase intent data shows a lift of 19 percent for the Corolla and 10 percent for the Camry due to the zero percent financing. The Highlander got a 12 percent lift; the Tacoma a 5 percent rise. Purchase intent for the rest of Toyota's models -- both those covered by the zero percent plan and those not -- was down.

Toyota Purchase Intent  Toyotas with 0%
Corolla	19%
Highlander	12%
Camry	10%
Tacoma	5%
RAV4	-1%
FJ Cruiser	-2%
Matrix	-5%
4Runner	-6%
Sequoia	-16%
Tundra	-17%
Sienna	-17%
Toyotas with no 0%
Land Cruiser	-7%
Yaris	-8%
Highlander Hybrid	-12%
Avalon	-16%
Camry Hybrid	-21%
Prius	-24%
Camry Solara	-25%

 Source: Edmunds.com

 

To Be Extended

Meantime, Toyota has hinted it may extend the interest-free loans beyond the scheduled November 3 expiration date.

"We will see how things are going," said Toyota Motor Sales President Jim Lentz told Reuters in an interview Thursday. "I don't think we are losing business in our dealerships because of lack of credit for consumers."

Lentz told Bloomberg News dealers in California, Toyota's biggest market, report increased customer traffic in the past week as a result of the promotion. He added "it's a little too early to tell" if the financing deal is boosting sales, though he said Toyota's data shows the first week of October sales matched the first week of September's. 

Lentz told the media attending Toyota's celebration of its Michigan tech center expansion that the global credit crunch and turmoil in financial markets are affecting the automaker's business "more from a consumer confidence standpoint." 

More Than a Credit Crunch

But the fact zero percent financing by Toyota and other manufacturers doesn't appear to be slowing the continued downward spiral of vehicle sales in early October suggests the credit crunch, blamed by manufacturers and dealers for the sales decline, is only part of the picture.

It appears consumers simply are hunkering down and postponing vehicle purchases altogether. Indeed, Toyota spokesman Mike Michels told Edmunds.com this week that financing is less the issue in slow sales than showroom traffic. "Dealers can almost certainly get a customer in a car," he said, "if they would just show up."

Phil Reed, Edmunds.com's senior consumer advice editor, contributed to this report.

 

Posted by Michelle Krebs at 4:21 AM under Analysis , Companies , Toyota | Comments (2) | digg this | Seed Newsvine

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