US auto sales plunge as credit crunch hits

Major automakers reported plunging US sales for last month - led by a 34 per cent slide at Ford Motor Co. - as an escalating credit emergency slammed a slumping industry and raised new doubts about when the world's largest auto market would hit bottom.

The downturn in auto sales for September coincided with a crisis on Wall Street and claimed even the auto industry's better-performing brands.

Sales were down 24 per cent at Honda Motor Co. Ltd, 32 per cent at Toyota Motor Corp. and 37 per cent at Nissan Motor Co. Ltd.

US industry sales leader General Motors Corp., which was more aggressive in discounting its vehicles, managed to keep its September sales decline to a relatively small 16 per cent to take a larger share of a rapidly declining market.

"Consumers and businesses are in a very fragile place," Ford sales chief Jim Farley said. "An already weak economy compounded by very tight credit conditions has created an atmosphere of caution."

Chrysler LLC was also expected to post lower sales.

The bleak auto sales results represent an early reading on the recent economic impact of a credit crisis that has triggered a rapid consolidation in banking and ongoing government efforts at a rescue plan over the past month.

On an industry-wide basis, analysts had expected auto sales to drop to a 13.5 million annual rate last month, down from 16.2 million a year earlier and from August's 13.7 million.

Earlier this year, a sharp rise in gasoline prices accelerated a shift in consumer demand toward more fuel-efficient cars and away from large trucks and SUVs.

But in recent months, auto industry executives and dealers have said the lack of credit for car shoppers has supplanted gas prices as a reason for lost sales.

Ford said customers were being forced to use more cash to close deals and said the credit-market uncertainty made it impossible to forecast when the industry would bottom out.

The political debate in late September in Washington over a still-pending bailout for the financial sector stopped car buyers in their tracks by injecting a new note of uncertainty, Ford's chief sales analyst George Pipas said.

"It was tantamount to a natural disaster," he said.

The drop in auto sales comes despite stepped-up discounting on this year's models, including an employee-pricing offer from GM.

Edmunds.com, an industry tracking service for consumers, estimates that the discount on the average vehicle for September was €2,022, up 19 per cent from a year earlier.

The weak September sales results underscore the risks for US auto dealers, who are contending with dwindling sales, higher costs for carrying inventory and increasing difficulty finding lenders to make auto loans.

The top US auto dealership group AutoNation Inc. said that car loan approval rates had dropped to about 60 per cent from 90 per cent a year ago.

Advisory firm Grant Thornton said in a forecast released that it expects the rate of failure among US car dealerships to accelerate over the remainder of this year and into next year.

If US auto sales held flat or declined slightly from this year's projected levels next year, about 3,800 dealerships would need to close, the study said.

That would be about 18 per cent of the total number of dealerships as of the end of this year.

"An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines," said Paul Melville, a partner with Grant Thornton.