• by Karl Greenberg , October 1, 2008

September was stunningly bad for the automotive business. With credit lines freezing up like diesel in February, the economy seizing up, and consumers sitting it out, virtually every automaker is staring at double-digit declines--most above 20%.

Sales of Ford, Mercury and Lincoln vehicles were off 34% last month. Chrysler sold 107,349 units last month, down 33%. The company said it will launch an October incentive push including cash and financing on 2008-model vehicles--and added that the spiffs will give 2008 model-year Dodge Ram total manufacturer discounts up to $6,000 or 0% APR financing for 72 months with $1,000 cash back.

General Motors, which has been aggressive with such incentive programs as "Employee Discounts for Everyone," has staved off the level of declines seen across town. GM posted a 15.8% decline last month.

But even automakers that have reaped record sales of subcompact cars with gasoline topping out at $4 per gallon are in pain. Honda, whose Fit and Civic cars sold in record numbers in the first seven months this year, posted a 20.9% decline last month versus the month last year.

Toyota posted nearly a 30% decline versus the month last year, with YTD sales down 10.4%. Sales of Nissan vehicles were down 36.8%, with the Nissan division down 38.4%, while sales of Infiniti Division vehicles fell by 24.1%. Korean brand Hyundai posted 25% declines in sales.

Traditionally, luxury vehicles have maintained a cruising altitude above the weather. Not now. Sales of Mercedes-Benz vehicles dove over 16% last month. BMW reported September sales of 18,506 vehicles, a decrease of 25.8% over the 24,932 vehicles sold in September 2007. Toyota's Lexus Division reported September sales of 16,045 units, a decrease of 33.4% from the year-ago month.

Michael Sheridan, founder and president of Global Debt Network Automotive (GDN Auto) a nationwide online loan portfolio marketplace, says September sales are a vivid testimony to the power of consumer wariness amid tightening credit and vanishing leasing deals.

Sheridan says the combination of plummeting loans and shrinking leases is upending the market, which had been defined--because of favorable loan terms--by consumers trading up from small cars to large sedans and SUVs. "As the leasing option becomes nonexistent, consumers are saying, 'do I really need to make the second-most expensive purchase I can make?'"

The firm commissioned a survey of 1,000 consumers by Chicago-based Synovate that showed, among other things, that the decline in new-car leasing programs is leading consumers to the used-car lot, or to postpone purchase altogether.

"What the leasing trend did for auto dealers was allow them to put customers in higher-quality vehicles at a lower price point than if they were buying, because they would negotiate based on the residual value of that vehicle," he says.

He notes that with the gasoline crunch eliminating residual value for those "trade up" vehicles, since nobody is buying SUVs these days, and without favorable terms for a new-vehicle purchase, it's off to the used-car lot. "When you look at 40% of survey respondents saying they don't know what they will do without lease options, it means freeze of purchasing decisions. Our expectation is there will be a huge increase in used-car sales."