US Housing Slump Squeezes Car Sales

28 November 2006

DETROIT: The slump in certain regions of the US housing market has added to the headaches currently plaguing the nation's Big Three automakers, and prospects for a return to full sales health in the foreseeable future are dim.

Rises in interest rates are putting the squeeze on mortgage holders, especially in leading car markets such as California where sales dipped 16% in the third quarter.

The California Motor Car Dealers Association predicts a 2.5% drop in new-car registrations in 2007. Dealers in south Florida, Arizona and other areas where home values are down have also seen a fall in vehicle sales.

Apart from the effect on private purchases as homeowners have less disposable income, house-builders are also delaying the purchase of pickup trucks, which are Detroit's most profitable models.

Market researcher IRN now forecasts 2007 sales of 16.3 million light vehicles, or cars and trucks. If correct, it would be the lowest level since 1998 and a drop of 300,000 from this year's expected sales of 16.6m vehicles.

General Motors and arch-rival Toyota Motor are both offering more optimistic forecasts of 16.5m vehicles for next year. But GM, Ford Motor Company and Chrysler Group have seen their collective domestic market share slip to 54% so far in 2006.

Warns Erich Merkle, IRN's director of forecasting: "To be honest, there is a lot more downside risk to that than there is a chance it gets better."

Data sourced from Wall Street Journal Online; additional content by WARC staff