Auto Sector Affected By Housing Slump
The “mainstream news” constantly reminds me that not only has housing bottomed (according to such reliable and unbiased sources as the Treasury Secretary and real estate industry leaders), but that the soon-to-be-over housing decline poses no threat to the broader U.S. economy. Today’s Wall Street Journal analyzed the relationship between the U.S. housing and auto sectors, and concluded that:
The housing market has already taken a toll on auto sales, as weak home values dim consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year.
According to the Journal, some auto sector analysts are forecasting car and truck sales at their lowest rate in a decade.
Mike Jackson, Chief Executive of AutoNation Inc., the largest U.S. car dealership chain, told Reuters today that, “We don’t see light at the end of the tunnel yet, we still have a lot of difficulty to work through. As best as we can tell, we see no indication it’s going to get any better this year.” Stagnant home prices combined with resetting adjustable rate mortgages have resulted in consumers with reduced or negative equity in their homes, according to Jackson. As a result, “Those consumers are not willing to make any big ticket purchases.” Reuters noted that the two markets most affected by the housing slump are California and Florida, which account for about 50% of AutoNation’s new vehicle revenue and 20% of total U.S. new vehicle sales. In an apparent correlation to housing, industry new vehicle sales declined 14% in Florida and California in the second quarter while AutoNation’s sales dropped 16% in both states.
The profitable pickup truck segment is also getting hit hard. According to the Wall Street Journal, slowing home construction is decreasing demand for pickups. Autodata Corp. reports that pickup sales are off 3.8% this year (5.6% by Detroit’s Big Three). Bear Stearns analyst Peter Nesvold told the Journal that, “Continued housing weakness will likely further weigh on truck demand.”
All I can say (sing?) at this point is, “Like a rock.”
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