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US Auto Industry Woes Could Translate to Consumer Incentives

[Mar 5, 2009.]


It's looking like more challenges ahead for the US auto industry. CNN Money reports that sales of US autos declined by 40% in February, the lowest level since December 1981. Based on February's dismal figures, industry analysts expect the downward trend to continue. There's nothing new in the reasons behind the slump in auto sales; as Americans continue to lose their jobs and retirement savings, they're pulling back on everything but essential spending. Consumers are in hibernation, and it's going to take more than a gentle nudge to wake them up.

The scenario grows worse as auto sales fall, production is cut, and employees face layoffs. GM and Chrysler have requested another $21.6 billion to see them through this crisis, and Ford, which has not yet taken any bailout funds, has asked for a line of credit for approximately $9 billion.

Auto Loans and Other Incentives

The (formerly) Big Three take some of their bailout/line of credit funds and use them to provide potential car buyers with attractive financing options and buyer incentives. They're going to have to go beyond zero percent auto loan. They're going to have to go beyond auto loan incentives, and aggressively advertise the availability of auto loans for people with not-the best credit. After all, they buy cars too. Some of the obstacles families encounter when buying a new car are registration and insurance fees. Using some of the bailout/line of credit funds to offer registration and insurance incentives along with more accessible financing may convince Americans to support the spine of American industry by buying new cars. Dealer promotions will have to do more than turn consumers' heads to get them to visit their lots.

Although the government may provide consumers with tax incentives for buying new American cars, we're still a culture driven by instant gratification. A consumer tax incentive may help, but US auto makers must convince consumers that the time to buy a new car is now, and that compelling financial incentives are readily available.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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