Preoccupation With Iraqi Conflict Hasn’t Hurt Auto Sales
The “CNN effect,” with consumers staying glued to their TV sets during a war, failed to dramatically slow sales at most Southern California auto dealers over the weekend.
Still, the auto industry is facing a number of challenges this year as a weak economy, record-high gasoline prices and the effect of 18 months of vehicle rebates and other sales incentives seem to have run out of steam.
On Saturday afternoon, the television in the customer lounge at Family Toyota in San Juan Capistrano was showing bombs and missiles bursting over Baghdad, but no one was watching. After a slow morning, the dealership was suddenly full of potential customers, and most of the dozen salesmen were out on the lot, trying to turn shoppers into buyers.
“You can’t stop living,” said Mission Viejo resident Mike Williams, who was shopping at Family with his wife, Lisa, and two young daughters. They were looking for a redesigned Toyota 2004 Sienna minivan, but left empty-handed because the dealership was out of stock.
Family General Manager Mike Ponzi said the 6-year-old dealership sold 42 vehicles from Friday through Sunday. “Not as good as we’d like, but not bad,” he said. Sales included six new SUVs and seven new pickup trucks -- an indication, Ponzi said, that gas prices and anti-SUV campaigns aren’t having much effect yet.
His dealership had a decent weekend, but nationwide passenger vehicle sales fell 8% for the week ending Saturday, said Paul Taylor, chief economist for the National Automobile Dealers Assn. That’s about 30,000 fewer passenger vehicles than were sold the same week last year, or an average of 1.5 cars fewer sales per dealership, he said.
So far, the CNN effect hasn’t reached the level it did during the 1991 Persian Gulf War, when sales plunged about 30% in the first week or so.
Some car dealers caution, though, that sales could drop substantially if the casualty count among coalition troops climbs.
Paul Wondries, Alhambra-based co-owner of a chain of 20 new-car dealerships across the state, said that although his sales Friday and Saturday were good, “It just dried up on Sunday at all of our dealerships as news about the Marine [casualties] came out. We weren’t even getting phone calls, which makes me think people were home watching the news.”
While weekend sales were good at Fritz Hitchcock’s five dealerships in Puente Hills, Fullerton, Northridge and Hermosa Beach, he echoed Wondries’ concern about the effect of negative war news. “If the body count of U.S. troops gets worse, next weekend could be a disaster for sales,” he said.
A week or two of slow sales can be handled, but a long-term slowdown would hurt. Car dealers have to buy their vehicles from the factory and most borrow money to do so. The interest on those loans can erode any profit if a vehicle remains on their lot too long.
At Family Toyota, where the inventory of 250 new cars and trucks represents an $8-million investment, Ponzi figures his monthly interest averages $120 per vehicle.
Still, the consensus from Taylor and other economists is that there will be a small “war hit,” and that nationally car sales will remain fairly strong this year, winding up in the range of 16.3 million-16.5 million units sold, or 2% to 3% less than the 16.8 million passenger vehicle sales recorded last year.
Whether those sales will translate to a profitable year for all automakers is another issue. Domestic car companies, led by General Motors Corp., have pushed rebates and other incentives to a record high of about $3,000 per vehicle, said David Healy, auto industry analyst with Burnham Securities Inc. By comparison, the average incentive for European brands is about $1,500, while the Asian automakers average just $1,000 per vehicle.
Wes Brown, an analyst with NexTrend auto market research in Thousand Oaks, said he expects most Asian and European brands to gain market share this year from American models.
In the meantime, said analyst Art Spinella of CNW Marketing/Research in Bandon, Ore., his survey found that floor traffic in car dealerships last week was down almost a third from a year ago, and that 80% of those who were out shopping were there only out of absolute need.
One such consumer at Family Toyota was Marine Sgt. George Medina, who is stationed at nearby Camp Pendleton. Medina and his wife, Rachel, had just purchased a 2-year-old Toyota Solara coupe, he said, “Because I don’t know when or if I’ll be shipped out to Iraq, but we wanted to make sure she had a good car if I do go.”