Car sales emit faint whiff of recession

The Baltimore Sun

We know about the housing market. Now soothsayers worry weakness will spread from Realtors and mortgages to the broader economy.

In that light, Acuras and Impalas may be trying to tell us something.

Maryland auto dealers sold 1,965 fewer cars and trucks in August than they did the year before - a 5 percent decline, according to the Motor Vehicle Administration. This year through August car and truck sales have fallen 4.4 percent compared with the same span in 2006.

That's hardly the degree of damage we're seeing in housing. Maryland existing-home sales fell by a fifth this summer compared with last year, and the number of homes on the market has quintupled from three years ago. But car-sales weakness suggests challenges for businesses that have nothing to do with real estate or home furnishings - even here in the Free State, still lubricated by homeland security dollars.

In coming months the car trade will be Maryland's dashboard warning light. It may not be flashing recession yet, but keep an eye out. "There may be some nervousness about the whole economy psychologically," says Daraius Irani, director of applied economics at RESI, Towson University's research and consulting arm. "So people are saying, 'You know what? Maybe this year isn't the year we buy the Lexus car.' "

Actually, Lexuses, BMWs, high-end SUVs and other luxury cars are selling well, dealers say. But less-expensive models and domestic marques are not.

"Lexus is on fire right now," says Len Stoler, who runs dealerships in Baltimore and Carroll counties. "Porsche and Audi are doing well. We're still doing a decent job with trucks. It's not as bad as you might believe. Certainly we're not getting the numbers out of domestic brands that we did a few years ago."

Overall, Maryland dealers are on track to sell the fewest new cars this year since 1999 or 1998. It's true that sales in recent years have been quite high, and now they may simply be reverting to the long-term trend. Even so, they're a proxy for the broader economy, which has been on its own hot streak.

Businesses selling durable assets such as houses and cars are good bellwethers because buying those products at any given time is usually an option, not a necessity. Consumers opting to drive their 1999 Malibus for an extra year are sending signals about economic expectations and their likelihood to buy other things.

Fortunately, the financing pipeline for cars doesn't seem to have clogged up as it has for houses, according to dealers.

Car loans are often sold to investors in bundles similar to the mortgage packages that blew up in hedge funds. But car loans didn't come with adjustable rates and other features that got homeowners in trouble. Car loans quickly respond to changes in short-term interest rates, which the Federal Reserve just lowered. And unlike homes these days, cars come with a predictable depreciation schedule.

Ms. Investor, would you like your loan to be secured by a 2008 Chevy Tahoe? Or by a 2005 Florida condo? Thought so.

Nevertheless, flat housing prices mean people will be less able to finance cars with home-equity loans, says Irani.

Despite signs of slowdown, Maryland's economy is doing better than the nation's. The state is adding jobs at a faster pace than the rest of the country. Cranes are all over the Baltimore skyline. Military base realignment will create perhaps 40,000 Maryland jobs between now and 2011.

"I haven't experienced the [base realignment] effect to this point, but I'm very optimistic about the impact in the future," says Chuck Boyle, whose Bel Air Buick and Pontiac dealership is near Aberdeen Proving Ground. His waiting list to buy the new Buick Enclave crossover vehicle is six or eight weeks long, he says, and sales are "ahead of last year, but not by a lot."

At another dealership, it's hot and cold.

"I've been doing it for 24 years now and I've frankly never seen anything like this," says Kevin Bell, president of Win Kelly Clarksville, which sells General Motors brands along with Kias and Isuzus.

Business isn't bad, Bell says. "It's just not consistent. We'll have a 15- or 20-car day and come back with a three-car day, all in the space of literally a week," he says. "It almost tracks the news on the business page. When you get the bad news on the business page it kind of turns the switch off."

If the car business starts generating its own bad news, look out below.

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