October SAAR could be lowest in 25 years

Tight credit and a swooning economy continue to take their toll on vehicle sales in the U.S., leading some analysts to predict the seasonally adjusted annual rate (SAAR) will fall to its lowest level in a quarter-century.

The SAAR is a formula that predicts the total number of vehicles that will be sold in a calendar year based on the number of sales in a particular month. In September, the SAAR was 12.50, meaning that last month’s sale predicted that 12.5 million cars and trucks would be sold in 2008.

Deutsche Bank analyst Rod Lache is forecasting October’s SAAR will be 11 million units, a figure not seen since April 1983. This is based on evidence sales weakened at the end of September and showroom traffic has not increased in October. October is generally not as good a month for new vehicle sales as September.

Lache’s outlook is reinforced by comments from Jim Farley, head of sales and marketing for Ford. Farley says the company is “seeing a real weak month” but noted there was an uptick in activity last weekend that could mean sales will improve in the second half of the month.

In his report, Lache said all automakers would have difficulty matching their sales numbers from a year ago, but singled out General Motors sales for a major hit. With the ending of GM’s employee pricing program and big price increases on some 2009 models, the General could be looking at a plunge of 50 percent when sales are reported on November 3.

The one bright spot for automakers is the continuing retreat of gasoline prices from their July all-time record highs. As reduced demand has driven down the price of oil, the national average of regular unleaded has fallen by nearly a dollar a gallon, though it is still 40 cents higher than this time last year. Paul Taylor, chief economist at the National Automotive Dealers Association, says this trend could persuade buyers who had been snapping up small cars to once again consider larger vehicles and light trucks. Taylor is looking for an October SAAR of around 13.5 million sales.

In addition to consumer worries about jobs and the grim near-term outlook for the economy, credit remains difficult to obtain making a tough sales environment even more challenging. The situation was aggravated yesterday when GMAC announced it would consider only those applicants with credit scores above 700. This could deter potential customers from even visiting dealer lots for fear they will be unable to obtain the financing that is needed for more than 90 percent of retail auto transactions.