DETROIT — August car sales could be down 10 percent compared with a year ago as the mortgage credit crunch has homeowners feeling less secure and unwilling to sign on for yet another large monthly payment.
Consumer Web site Edmunds.com estimates sales will be down about 10 percent compared with last August, even as the automakers continue to pile on incentives to lure customers. Auto sales are particularly weak in regions such as Florida, Nevada and California, where the housing market also is being hard-hit.
"Consumers' ability to purchase a vehicle is not necessarily any less than last year, but what is very different is the consumer psychology," says Jesse Toprak, executive director of industry analysis for Edmunds.com. "When their houses lose real value, consumers are not in the best mood to go buy a new car."
That sentiment was reflected in the most recent consumer confidence figures, released Tuesday, down 6.9 points from July.
Mike Jackson, CEO of AutoNation, the nation's largest chain of auto dealers, on Tuesday called for the Federal Reserve Bank to lower interest rates. Increasing rates has worked to slow the economy, Jackson says, and he worries the economy will fall into recession if home and car sales don't pick up soon. Adjustable rate mortgages are taking a bigger bite out of people's paychecks, and the uncertainty surrounding home sales is forcing people to put off making big-ticket purchases.
"The psychology in the marketplace right now is that people don't know how bad it's going to get, so they're trying to adjust to that," Jackson says. "You have this nitroglycerine situation between the credit crisis and the consumer pulling back."
When consumers find the ability to access cash through home refinancing and home equity loans is drying up, they lose interest in the car market, says Peter Hoffman, a dealer in Southern California. Hoffman says it had become commonplace for homeowners to refinance their mortgages and then come in to buy a car.
"With the whole real estate market slowing down and that refinancing market shrinking, it's impacting those buyers," says Hoffman, who sells Chevrolet, Buick, Honda, Acura and Subaru vehicles in Monrovia, Calif.
Still, the shakeup in the mortgage market, which is leaving some subprime borrowers facing default on their loans and making it harder for others to simply get a mortgage, isn't spreading to car loans.
"Nothing has really changed in the way they're approving loans," says Rick Case, owner of the Rick Case Automotive Group, which has dealerships in Ohio, Georgia and Florida.
The automakers are doing their part to keep customers coming in with incentives. Even the Asian automakers, which historically shy away from hefty rebates, are piling on incentives.
"Honda has in the last couple of months gotten more aggressive than they've ever been," says Case, who has sold Hondas for several decades.