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Auto sales to rebound in latter half of the year

The next five months or so will be difficult ones for auto dealers but the chief economist for a trade group expects a bit of a rebound in the second half of the year.
/ Source: The Associated Press

The next five months or so will be difficult ones for U.S. auto dealers, with sales expected to slump, but the chief economist for the National Automobile Dealers Association expects a bit of a rebound in the second half of the year.

Still, economist Paul Taylor predicts U.S. car and light truck sales will drop to about 15.7 million for the full year. That’s down about 2.5 percent from the 16.1 million vehicles sold in 2007, the worst year in a decade, and down 1.3 million vehicles from the 17 million sold as recently as 2005.

At the NADA’s annual convention in San Francisco, Taylor predicted slow economic growth and weak sales during the first half of the year, with unemployment and credit problems lingering.

“Energy costs of gasoline, home heating and cooling will continue to drain money from consumer budgets and slow down consumer spending,” he said Sunday.

Other economists and industry analysts have predicted U.S. sales as low as 15.5 million, while some automakers have predicted up to 16 million.

Taylor said the economy could slip into a recession if the Commerce Department revises fourth-quarter 2007 gross domestic product growth downward from the anemic 0.6 percent it reported last month. Two more revisions of fourth quarter statistics are possible, and if the first quarter of this year is also negative, that would mean a recession, Taylor said.

“We think the first quarter of this year is going to be the weakest quarter,” he said in an interview with The Associated Press.

But Taylor also said the economy could slide by with small growth and avoid a recession. Many economists define a recession when GDP growth is negative for two consecutive quarters.

The overall economy, as measured by GDP, grew by just 2.2 percent in 2007, the weakest performance in five years.

Taylor also predicted no more than a 2 percent increase in GDP for 2008.

Although it is difficult to predict, Taylor said gasoline prices could drop to $2.50 per gallon later in the year because demand in the U.S. and Europe is starting to drop. In the U.S., he said, people are combining trips and using less fuel. That, coupled with increased supply from refineries, could reduce the price and help spur auto sales, he said.

Taylor predicted that unemployment would peak at about 5.3 percent this year, up from 4.9 percent in January.

But even with the Federal Reserve’s January interest rate cuts that totaled 1.25 percentage points, and a $168 billion economic stimulus package approved by Congress, Taylor said real estate will continue to be a problem in some regions.

“A sagging residential real estate market and credit crunch will be helped by recent interest rate cuts,” he said. “But real estate difficulties will persist into 2009 for about half of the U.S. population.”

The four-day NADA convention is attended by about 10,000 dealers and spouses.