NY Times: The auto industry is getting sideswiped by the housing crisis

[marmar]

Auto Industry Feels the Pain of Tight Credit

By ERIC DASH
Published: May 27, 2008



The auto industry is getting sideswiped by the housing crisis.

Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.

Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.

The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.

“It is a bleak picture, and it all hinges on the availability of financing,” said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. “The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors.”

Within the auto sector, problems stemming from the continuing tightening of credit have already started to spread. Auto lenders like Chase, Capital One and GMAC are finding it harder and more expensive to obtain money for loans. Profits also look dimmer as the lenders absorb losses from defaults and pull back from making new loans. .....(more)

The complete piece is at: http://www.nytimes.com/2008/05/27/business/27auto.html

[PSPS]

1. The home-equity loan debacle is felt throughout the economy

Somewhere along the line, the "second mortgage," once the mark of financial shame, became acceptable and a twisted badge of "success." The Home Equity Line Of Credit (HELOC) is, in fact, a second mortgage. People would be bombarded with offers to set them up, and then they would use them as an ATM for everything from new cars to vacations. Never mind that these were designed to meld perfectly with a homeowner's desire to "live rich," while insuring that their most valuable asset, their house, would never be paid off. In fact, there would be no real equity at all.

I read that in Southern California, many cosmetic surgeons are going in to other lines of business because their clients have disappeared. HELOC's were also paying for nose jobs and breast implants.

Need a second Hummer? Write a check on the good old HELOC!

Kids want that expensive Wii package they see on TV? New computer? Cruise this summer? New wardrobe? Big wedding for the daughter? Heck, even day-to-day living expenses? HELOC to the rescue!

What's the problem anyway? Home prices are always going to go up, right? (A report today showed the first year-to-year contraction of home prices since THE DEPRESSION.)

Now that the HELOC spigot has been turned off, a lot of businesses are going to be going "off" as well.