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U.S. light-vehicle sales in 2007 will be the lowest in nine years – around 16.4 million units. That, at least, is the consensus of a dozen forecasters consulted by Automotive News. They blame the slowing U.S. economy and falling home prices.
The next worst year in that nine-year span probably will be 2006. This year figures to come in about 16.5 million, 2.9% below 2005, according to the Automotive News Data Center.
“Lots of things are going on, none of which are good for auto sales,” said George Magliano, a New York-based analyst for Global Insight. “The economy is downshifting; gas prices; interest rates; housing is taking a hit; the Big 3 are struggling – in that environment, auto sales are struggling.”
Often times the experts forecast falling sales in December, then have to raise projections when big incentives kick in. But that didn’t happen in 2006. Incentives were less generous than in other years, and gasoline climbed to $3 a gallon. And although interest rates and the pain at the pump have eased, those factors are still being felt.
In addition, the economy is hitting the brakes. Real gross domestic product grew at an annual rate of only 2.2% in the third quarter versus 5.6% in the first quarter.
“Housing is an important variable,” said Paul Ballew, executive director of global market and industry analysis at General Motors. Still, GM has one of the more optimistic 2007 forecasts: 16.7 million light vehicles.
“What we see for the economy as a whole – the housing market and the like – for (2007), we see as pretty consistent with ’06,” Ballew said.
Ford Motor Co.’s chief economist, Ellen Hughes-Cromwick, says interest rates and low inflation are favorable factors for 2007.
“You’re likely to have lower inflation,” she said. “The vehicle buyer’s pocketbook income is going to go a little farther than it did this year. Inflation won’t be eating up as much of their paycheck.”
Hughes-Cromwick said long-term interest rates have begun to ease, which will trickle down to consumer loans. “While the pace of economic activity … is slowing – and we anticipate it will slow some more because of the housing correction – low inflation and relatively low interest rates provide a good cushion for auto sales,” she said.
Gasoline prices also will have an effect on 2007 sales, even though prices have stabilized.
Said Van Jolissaint, corporate economist for DaimlerChrysler AG, “We’d been wondering the last couple of years – as the price of gas went up and down seasonally – how big an increase is it going to take, how long does it have to last, before consumers got spooked?”
The answer came last summer. Oil spiked to $78 a barrel, and gasoline reached a national average of $3.09 a gallon. Jolissaint said that chilling effect should start to wear off in 2007.
He expects light trucks to regain some market share. For the second year in a row, light trucks lost share to passenger cars in 2006, reversing a long-standing trend.
This year, “the future became sufficiently muddy that consumers decided to think twice before buying the vehicles they were buying in the past,” said Jolissaint. “They didn’t all run out and buy compact sedans and subcompacts. They just didn’t buy anything.”
Meanwhile, analysts are also factoring in the slump in housing prices. The rise in home prices peaked in the second quarter of 2005 after a decade of nearly steady increases, according to government statistics.
Paul Taylor, chief economist for the National Automobile Dealers Association, said the “wealth effect” created by rising home prices is partly psychological. It makes homeowners either more or less comfortable with buying big-ticket items such as cars.