Image: World Ford Auto Dealership
Strong car sales have been one of the big drivers in a sluggish economy, contributing to a surprising increase in growth this quarter.
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msnbc.com

Sales of cars and light trucks slowed sharply in early September after a surge in July and August driven by a wave of zero-percent financing incentives, an industry research firm said.

Based on a sampling of results over the past two weeks, J.D. Power and Associates estimated Thursday that 1.2 million vehicles will be sold this month, for a seasonally adjusted annual rate of 15.9 million. That represents a sharp slowdown from the rate of more than 18 million cars, pickup trucks, vans and sport-utility vehicles in July and August, when automakers drew heavy traffic into their showrooms with a new round of financing deals.

“You can’t sustain the pace of 18 million units for very long, because that is an abnormally high level,” said Van Bussmann, senior vice president of global forecasting for the research firm.

Strong car sales have been one of the big drivers in a sluggish economy, contributing to a surprising increase in growth this quarter. Some analysts expect gross domestic product to grow at a 4.5 percent rate this quarter, compared with 1.1 percent in the second quarter, based in large part on the July and August car sales. But growth is expected to slow again in the fourth quarter as consumers pull back.

With auto sales at near-peak levels for much of the past year, including the record month of October 2001, few analysts expect the auto industry to be a major contributor to growth in the year ahead.

“The growth impetus is going to have to come from other industries,” said Bussmann. “If anything (the auto industry) is going to be a flat influence or maybe slightly down.”

Automakers sold 17.2 million cars and light trucks in the United States last year, a pace that is expected to slow to 16.8 million this year and 16.6 million in 2003, according to J.D. Power.

But Josh Peters, an analyst with Morningstar, said sales could come in slightly higher, pointing out that automakers repeatedly have defied expectations of a slowdown over the past year.

“It seems every month the sales roll in and they’re ahead of expectations,” he said. “People still go out and buy cars when they perceive there is a good deal out there.”

Peters also said car sales have become less cyclical, hardly turning down at all in the latest recession, as automakers have targeted wealthier consumers less affected by the economic slowdown.

With market interest rates at their lowest levels in 40 years, General Motors, Ford and other automakers have been able to offer a steady stream of financing incentives to keep their factories humming. But sales slowed sharply in the first half of September as dealers ended promotions covering dwindling supplies of 2002 models and began pushing new 2003 models with less attractive incentives. Sales also may have slowed for a day or so as consumers paused for the Sept. 11 anniversary commemoration.

“They’re going to have to gain a lot of traction by the end of the month” to meet J.D. Power’s estimate of a 15.9 million rate for September, Bussmann said. “It wouldn’t take a lot for it to fall below that number.”

GM Vice Chairman John Devine said this week that September’s sales would not reach August’s highs in part because GM was “basically sold out” of 2002 models.

But GM said Thursday it will offer interest-free loans through Sept. 30 on all of its remaining 2002 model year vehicles, following an even more aggressive incentive offer by Ford, which has more of the old-year vehicles left on its dealer lots. Ford is offering consumers the almost unheard-of chance to buy a 2002 model year car and make no payments until January, a ploy more commonly used in furniture and appliance retailing.

J.D. Power’s estimates are based on data the company collects from 5,900 new-car dealers across the country.

Reuters contributed to this story.

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