More economic fallout in the news, via the NY Times: “The auto industry is getting sideswiped by the housing crisis.”
Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.
Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.
Eric Dash reports, “The impact on the broader American economy could be profound.”
Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.
“It is a bleak picture, and it all hinges on the availability of financing,” said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. “The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors.”
For some many people, credit is tight. They are using their credit cards more often to cover neccessities due to the rising gas prices. Now, “borrowers are falling behind on their car payments at a rate faster than in other recent downturns.”
And losses are considerably worse. Auto lenders sustained losses on about 3.4 percent of their loans in the first quarter, a rate about 30 percent higher than in 2002, according to data from Moody’s Economy.com. Even some of the most creditworthy borrowers are stressed.
Things are bad all the way around. I’ve been saying here for a while that small business owners like myself are reeally feeling the pain of the economic mess we’re in. With the gas prices rising, it’s causing the price of supplies for many small business owners to rise too… drastically:
Inflation has sunk its teeth into small businesses this year. The number of owners citing inflation as their No. 1 concern on the National Federation of Independent Businesses monthly economic index in April was at its highest level since 1982. One in five owners is raising prices, according to William C. Dunkelberg, the trade group’s chief economist.
“What’s happening is every time people open the back door to receive supplies, prices are higher,” Mr. Dunkelberg said. “Right now they are trying to pass it on to their customers.” In April, 35 percent of owners said they raised prices, he added.
Where and when will it all end?
…on Main Street and in households across America — where rapidly rising fuel and food prices are not excluded — the picture is not so rosy. Gasoline prices are now up to about $3.80 a gallon. The cost of diesel fuel, which powers many small business vehicles, set a record yet again on Wednesday, about $4.56 a gallon, up nearly 64 percent from a year ago. And food prices rose at a 0.9 percent rate in April, the biggest one-month jump since 1990.
“The Federal Reserve in its minutes says it is counting on the recession to manage inflation,” Mr. Dunkelberg wrote in his summary. “If we are in a recession, it is not getting the job done.”
We really need a new president in the White House that understands the economy and is listening to the concerns of the voters.