November 6th, 2008
Credit Crunch Negatively Impacts Buyers of Detroit 3
Only 42 % of United States consumers who purchased a new car or a new truck during the past 90 days chose one that was made by Detroit companies, which is a grand decrease from 47 % a year ago. This is a rapid decline that was more than likely aggravated not only by the suffering economy, but also by the lower income levels that United States customers are experiencing. The credit situation, according to a senior director of industry analysis at the Power Information Network, is impacting domestics more than it is affecting the Asian markets. Detroit automakers have three primary brands, Chevrolet, Dodge and Ford. All of these brands attract buyers that have a median household income that is $5,000 or more below the industry average, according to the Power Information Network.
In this environment of much tighter credit, customers who are making more money are in a much better situation to purchase vehicles using cash. The more recent data from the Power Information Network shows that cash purchases of vehicles have definitely been on the rise in recent months because financing and leasing are becoming the less prevalent options for many consumers.
When gas prices began to go up in the second quarter of 2006, Detroit’s primary automakers experienced a serious headwind, seeing their retail share of the United States market drop below the 50 percent mark. The weak lending environment because of the credit crunch is the second headwind for these automakers to content with. Now not only are consumers tending to buy against options like the large SUVs and pickup trucks that Detroit automakers are known for because of the gas price fluctuations, but also because these higher price tags require higher financing and therefore less purchasing options. The recent retail market share performance of the Detroit automakers is a sign that even automakers are facing serious challenges in this suffering economy of ours.
Some of the other intense challenges that are being faced by the local automakers include perceptions of subpar quality, a lack of fuel efficient subcompact and hybrid vehicles, too many different dealerships and brands, vehicle lineups that are not quite as fresh as with other competitors, and even higher labor costs in relation to what foreign automakers offer. These things are disappointing, and even shocking, but they are simply a continuation of the same themes that we have been seeing for some time now.
Detroit automakers lost a combined 5 % points off of their market share in the last quarter, in comparison to the same period a year ago, which is the fastest year over year decline in two years. During this same period, General Motors lost a percentage point, Ford Motor Co. lost two percentage points and Chrysler LLC lost two percentage points. Two percentage points of market share is equal to the full production for an assembly plant for an entire year.
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