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Winslow Townson  /  AP
The bleak numbers, according to both industry officials and analysts, mean that record high rebates and low-interest financing deals will stick around until at least February.
updated 1/5/2009 7:59:31 PM ET 2009-01-06T00:59:31

Huge rebates and zero-percent loans couldn’t overcome economic uncertainty as U.S. auto sales plunged 36 percent in December, capping a dismal year that saw sales free-fall by 2.9 million vehicles from 2007.

The bleak numbers, according to both industry officials and analysts, mean that record high rebates and low-interest financing deals will stick around until at least February. But those deals will likely disappear as the remaining 2008 models are sold and inventories are lowered to match demand.

One automaker, Hyundai Motor America, is trying to woo skittish buyers by promising to let them return cars for up to a year if they lose their jobs and can’t make the payments.

Similar bold moves might be necessary throughout the year.

Every major manufacturer reported drops of more than 30 percent in December. Leading the largest year-over-year drop since the Arab oil embargo days of 1973-74 was struggling Chrysler LLC, which sold 53 percent fewer vehicles than last December and 30 percent fewer in 2008 than in 2007.

General Motors Corp. sold 2.9 million vehicles last year, the lowest number in 49 years.

U.S. auto sales tumbled to 13.2 million in 2008, down 18 percent from 16.1 million in 2007. Consulting firm IHS Global Insight predicts that U.S. sales will drop to 10.3 million this year as the economy continues to sputter.

Automakers were reluctant to predict when a recovery might occur, but most were pessimistic about the first quarter. After that, some were hopeful that President-elect Barack Obama’s stimulus package would kick in, coupled with a loosening of credit that could bring people back to the showrooms.

Even Toyota Motor Corp. and Honda Motor Co., which earlier in the year had seen increases, saw declines in December that were larger than their U.S.-based competitors’. Toyota was down 37 percent and Honda 35 percent, compared with Ford Motor Co.’s 32 percent drop and GM’s 31 percent slide. Nissan Motor Co. sales also dropped 31 percent.

Ford’s sales for 2008 fell 21 percent from a year earlier, keeping the Dearborn automaker in third place in the U.S. auto sales race behind GM and Toyota for the second straight year.

Jim Lentz, president of Toyota Motor Sales USA, said Toyota is in the midst of the most difficult market it has ever faced, and the situation will be tough until at least the second half of the year. Consumer confidence remains the biggest obstacle, Lentz said.

“We have no illusions about the coming year,” he said. “We’re in the midst of the most challenging and volatile markets we’ve ever faced and it may get worse before it gets better.”

Chrysler, which received $4 billion in federal loans, attributed its nasty sales drop to the company reducing sales to low-profit fleet buyers such as rental car companies.

Some smaller manufacturers, though, fared better. Subaru of America Inc. said its U.S. sales crept 0.3 percent higher in 2008 on stronger sales of its Forester and Impreza models.

Auto sales started the year slightly under 2007’s pace, but by May, U.S.-based automakers were suffering as gasoline prices started to rise toward $4 per gallon and people shifted from buying pickup trucks and sport utility vehicles to smaller, more efficient cars.

Then, in July, as gas prices neared their peak and the economy started to falter, sales tumbled and never recovered the rest of the year, even though gas subsided to under $2 per gallon.

Lower gas prices have cut into high-mileage gas-electric hybrid vehicles toward the end of the year. Toyota reported sales of the Prius, the top-selling hybrid in the U.S., fell 45 percent last month.

But Lentz was optimistic that hybrid sales would rebound.

“We’re going to see fuel prices creep up a bit,” he said. “I think the overall greening of America is going to see an increase in hybrid (sales) as well.”

GM’s December results were boosted by heavy sales incentives, including financing offers announced last week after the Treasury Department said it would give $5 billion in federal aid to the Detroit automaker’s ailing financing arm, GMAC LLC.

Michael Martin, who owns Chevrolet and Saturn dealerships in Manassas, Va., said he saw customer traffic and phone calls pick up almost immediately.

“I’d like to see (the financing offers) really take hold over the next 30 to 45 days,” Martin said. “Hopefully, we’ll start seeing some real upticks.”

Incentives such as rebates and low-interest financing offered last month were the highest on record for a December, said Jesse Toprak, executive director of industry analysis for the automotive Web site.

Rebates on full-size trucks were $7,000 to $8,000 in December, and IHS Global Insight analyst Aaron Bragman expects similar incentives as long as the economy is poor.

“You look in the paper and the deals on brand new GM pickups are astonishing,” he said. “The discount that you get buys a heck of a lot of gasoline.”

But Mark LaNeve, GM’s vice president for North American marketing, said he expects sales incentives to drop as GM sells down 2008 models. It still will be competitive in areas such as midsize cars, where Toyota has been offering $3,500 incentives on its top-selling Camry model, LaNeve said.

The Associated Press and Reuters contributed to this report.

Video: Auto sales hit the skids


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