Car buyers feel credit crunch

NEW YORK — Dismal September U.S. auto sales may be one of the clearest signs yet that faltering consumer confidence and tighter credit are squeezing consumer spending.

"It went from the housing market to the car market," said Reggie Chambers III, sales manager at Anderson Automotive Group in Baltimore.

Ford, Toyota, Chrysler and Nissan all reported U.S. sales drops of more than 30 percent Wednesday; General Motors said sales were down 16 percent. The final two weeks of the month were especially grim for car dealers as stocks tumbled, Washington dickered and credit markets froze.

To be sure, the auto industry has been reeling all year, thanks to falling home prices and record gas prices, which soured buyers on the light trucks and large cars Detroit had depended on for profitability. Now, the credit crisis is making things worse, as buyers struggle to qualify for loans and automakers scale back leasing.

The stock-market roller coaster made buyers even more nervous. Stocks had a one-day loss, on paper, of $1 trillion Monday, for the first time in history. As the market fell, some luxury-vehicle buyers called Toyota dealers asking for refunds on deposits they had made, said Don Esmond, senior vice president of auto operations for Toyota in the U.S.

The past two weeks were "tantamount, really, to a natural disaster," said George Pipas, Ford's top sales analyst. Showroom traffic looked like it does around a large storm, or as it did in the weeks following the Sept. 11 terrorist attacks, he said.

"There's just scare in the air," said Kitty Van Bortel, who owns both a Ford dealership and a Subaru dealership in Rochester, N.Y. "My opinion would be that sales are down because of the unknown, and that's always the worst. People really don't want to make a large purchase not knowing what exactly is going to happen."

Ray Ciccolo, president of Village Automotive Group, which operates six dealerships in the Boston area, said one lender has asked him to guarantee more loans, meaning that if the borrower does not pay a set portion of the loan, his company is on the hook for that amount. In the past, only borrowers with bad credit required a guarantee.

Chief Executive Mike Jackson of AutoNation, the largest U.S. dealership group, said tougher credit requirements from banks and finance companies — and limits on money to fund leases — have cost the 250-store chain 20 percent of its sales volume so far this year.

"Our standards have tightened," said Todd Denbo, a lending product manager at Wells Fargo. "We want customers to come in, even though it's a difficult time, and sit down with a banker and find the right solution for them. It may not be the auto loan that's the right fit for the customer."

Customers like Dee Gordon, 40, of Dansville, N.Y., are taking their time. Gordon was shopping with her 18-year old daughter for an $8,500 used car.

"They're going to be there, I keep telling my daughter," she said. "Nobody's buying as fast as you think they are anymore."

Even trade-ins of gas guzzlers for smaller cars are falling off.

"The first time gas went up, they would line up their trade-ins outside my door," said Jim Johnson, who manages a used Honda dealership in Richfield, Minn. "By now, they've adjusted their habits."

Reduced demand for trucks and sport-utility vehicles means customers who do trade them in for a smaller car sometimes get only half of book value, said Joel Jack, general sales manager at a Honda dealer in Richfield.

For example, someone recently traded in a high-end 2003 Ford Expedition that would once have been worth $17,000, but its value has dropped to only $6,400, he said.

In Bloomington, Minn., there was one happy car buyer, Annie Peterson, who paid cash for a Smart car. She had been on a waiting list for one of the two-seat micro cars since August 2007.

Peterson, a retiree, said she had skipped a trip to Italy and some U.S. road trips so she could afford the car.

"This is one of those things where I said, 'I'm not going to give this up,' " she said.

Associated Press reporters Ellen Simon, Bree Fowler, Ben Dobbin, Rich Matthews, Ben Greene and Elizabeth Dunbar contributed to this story