Credit Crunch Hits Car Manufacturers
By Geoff on Nov 8, 2008 in Automotive & Gas, Credit & Debt, Saving & Investing
Only 42 % of United States consumers who purchased a new car or truck during the past 90 days selected one that was manufactured by the Detroit “Big Three” companies, which is a significant decrease from 47 % a year ago. This is a rapid decline that was more than likely aggravated not only by the weakening economy, but also by the lower income levels that United States customers are experiencing. The credit situation, according to a senior director of industry analysis at the Power Information Network, is impacting domestics more than it is affecting the Asian markets. Detroit automakers have three primary brands, Chevrolet, Dodge and Ford. All of these brands attract buyers that have a median household income that is $5,000 or more below the industry average, according to the Power Information Network.
In this environment of much tighter credit, customers who are earning more money are in a much better situation to purchase vehicles using cash. The more recent data from the Power Information Network shows that cash purchases of vehicles have definitely been on the rise in recent months because financing and leasing are becoming the less prevalent options for many consumers.
Meanwhile, when gas prices began to increase in the second quarter of 2006, Detroit’s primary automakers experienced a serious problem, seeing their retail share of the United States market drop below the 50 percent mark. The weak lending environment due to the credit crunch is the second major problem for these automakers to deal with. Now, consumers are steering clear of the large SUVs and pickup trucks that Detroit automakers are known for because of boththe gas price fluctuationsand higher price increases. The recent retail market share performance of the Detroit automakers is a sign that even automakers are facing serious challenges in this difficult economy.
Some of the other intense challenges that are being faced by automakers include perceptions of subpar quality, a lack of fuel efficient subcompact and hybrid vehicles, too many different dealerships and brands, vehicle lineups that are not quite as fresh as their competitors, and even higher labor costs in relation to what foreign automakers offer. These things are disappointing, but they are simply a continuation of the same themes that we have been seeing for some time now.
Detroit automakers lost a combined 5% off of their market share in the last quarter, in comparison to the same period a year ago, which is the fastest decline in two years. During this same period, General Motors lost a percentage point, Ford Motor Co. lost two percentage points and Chrysler LLC lost two percentage points. Two percentage points of market share is equal to the full production for an assembly plant for an entire year.
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Posted by: Geoff Caplan
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