Jan 7, 2008

U.S. Car Market to Endure Dismal '08, Research Group Says

The gloomy storm clouds hovering over the U.S. automobile market will not dissipate in the next 12 months, according to a research firm that tracks vehicle demand. Based on expectations for fundamentals economic indicators that prompt consumer demand, CSM Worldwide is forecasting light-vehicle sales to descend to a 10-year low of 15.8 million units in 2008.

"The market will linger in a cyclical contraction phase," said Joseph Barker, senior manager of North American sales forecasting for the firm. "The downturn was triggered by diminished consumer purchasing power, depleted pent-up demand and structural changes at Detroit automakers."

Rising adjustable-rate mortgage expenditures, falling home values and surging energy costs (including the cost of gasoline) are draining discretionary income and straining the consumer psyche. In a climate of rising prices often caused by higher energy prices, inflation is a threat that could be even more taxing on consumers next year. Furthermore, CSM is concerned that the negative forces rattling the financial markets on Wall Street could spread to Main Street, forcing consumers to curb spending as the year moves on.

Pent-up demand was depleted in 2002-05 and has been slow to rebuild. Zero-percent financing and massive rebates in the four-year period artificially propped-up sales by pulling forward demand. Replenishing the demand pool has been complicated as well by the fall-off of vehicle scrappage and leasing. Despite 50 new model launches in 2007 and another 50 in the 2008 pipeline, auto companies will be especially challenged with luring back into dealer showrooms those car owners that are locked in a zero-percent auto loan.