The housing crisis is trickling down to cars.
Car sales are slumping at dealerships across the country and in Northwest Indiana, dealers are feeling the squeeze.
"I've been in the car business almost 25 years. It's definitely the worst I've seen... across the board," said Ron Gale, general manager of Team Hyundai in Highland. "You're seeing dealerships closing."
Nearly one in five car dealerships around the country could fail this fall and into 2009, according to a study released this month by Grant Thornton LLP. The reason is plummeting sales, increased operational costs and the credit crunch. Both house and car sales are affected by the credit crisis because people can't afford to pay for them with cash but are dependent on loans.
"The fact the financing has tightened up for the home market, now it's affecting the second-largest purchase people are making," said Kevin Lundy, sales consultant with Toyota of Merrillville. "No one wants to make a large investment right now, that's one of the hurdles."
As a result, potential buyers face bigger down payments.
"The people with the lower credit scores, it's much harder to get approval on those (loans) at this time," said Bill Tucker, sales manager with Paul Sur Pontiac GMC in Valparaiso.
But those who can afford to make the purchase can find great deals.
"The factory has huge incentives on a lot of vehicles. People who need vehicles, it's a good time to buy. They have discounts and rebates up to the $10,000 mark on the SUVs and pickup trucks," Tucker said.
The deals are a way for automakers to encourage sales on less popular vehicles. Demand for the Toyota Prius hybrid with its 48 mpg in the city is still outstripping supply, so buyers can expect fewer or no incentives on those and other popular fuel-efficient cars.
Ford, Toyota, Chrysler and Honda all reported drops of 28 percent to 34 percent in sales last month, including former bestsellers.
"It's not only the troubled economy, but the reason we're hit the hardest is the Ford F series of trucks were the flagship. Those sales are off dramatically," said David Heuring, owner of Paul Heuring Ford in Hobart. "We're down 40 percent from a year ago."
Part of the reason is high gas prices and tougher economic times, which means people don't want high car payments.
"We're still seeing a lot of folks coming in, they're trying to lower their monthly payment. The economy is affecting everybody. Some of our clientele has to trade in their luxury cars for more economic cars," said Gale of Team Hyundai.
Sales are often down right before a presidential election, but factors specific to Northwest Indiana also had an effect.
"We had a terrible flooding condition that put a damper on everything," Heuring said. "We had so many things hit us at once."
The drop in demand has been hardest on the Detroit three, which all had sales declining 16 percent to 24 percent in the first eight months this year. Analysts have said U.S. carmakers need to cut dealerships, especially in crowded city markets, to drive up sales in the remaining stores.
Dealers that sell cars from General Motors Corp., Ford Motor Co. and Chrysler are expected to account for most of the closings. To promote sales, General Motors offered employee discounts to all buyers in September and has now launched a campaign through Nov. 3 of 0 percent financing for up to six years or up to $7,000 total cash back for buyers with excellent credit.
The company also offers free financing for up to 72 months on some models. Toyota offers 0 percent financing for 36 months on many new car models and on most trucks and SUVs. Ford also offers 0 percent interest. Local dealerships like Team Hyundai are adding their own incentives, including service specials, discounts, better maintenance packages and free car washes.
"The next six to 12 months are going to be real hard. We've been through some of this, maybe not as bad in previous times. But we're car dealers, we're tough," Heuring said. "Northwest Indiana is in good shape. If everybody knew it, I think we'd all be better off."
U.S. vehicle sales are expected to be flat next year with possible recovery in 2010.