Tucked away in a Dismal Forecast For Car Sales is a key change in auto lending psychology. Let’s take a look.

The American auto industry is bracing for what may be its worst year in a decade. Several industry forecasters have sharply cut their projections for new-vehicle sales to less than 15.5 million this year, and abandoned rosy predictions for a rebound in the second half.

The broader economic woes prompted the marketing firm J. D. Power & Associates to cut its annual forecast to 14.95 million vehicles, from 15.7 million — the lowest sales level since 1995.

“The auto market is entering into a true recessionary phase, which is something we have not seen in the last 10 years,” said Bob Schnorbus, the firm’s chief economist.

With consumers short of cash and deep in debt, many prospective buyers are finding it difficult to secure financing for a new car. Automotive finance companies are fearful of repeating the mistakes of subprime lenders in the housing industry and are generally declining to make risky vehicle loans.

“We are faced with the dilemma of lowering our credit standards to put them in a car, or saying no,” said Michael J. Jackson, chairman of AutoNation, the largest auto retailer in the United States. “And we’re telling them no.”

“We expect incentives to go up and go up soon,” said Jesse Toprak, executive director for industry analysis for the buying guide site Edmunds.com. “We might even reach record numbers.”

Here’s The Deal

  • Customers are holding out for better deals.
  • Dealers are holding out for better customers.

That’s a rather a nasty brew, and inflation sure isn’t in the mix.

Mike “Mish” Shedlock
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