Car Dealers Fear Economy Could Scare Off Buyers

By Tom Krisher, AP Auto Writer

STERLING HEIGHTS, Mich. (AP) — Jeff Swanson was in the market for a new car just a few weeks ago. Then the stock market went crazy.

So Swanson, 25, decided to keep his 10-year-old Pontiac Grand Prix for at least another year. Gyrations in stocks and talk of a weakening economy rattled Swanson's confidence about taking on another payment, even though his new job running a home for mentally disabled people seems to be secure.

"Everywhere you turn, other people are saying 'Oh, I lost my job this week. I lost my job last week,'" says Swanson, who works for a nonprofit that gets money from the state. "I want to be a little bit financially set in case something like that happens."

It's an increasingly common reaction among would-be car buyers that has dealers and automakers worried. In May, many believed sales would reach a healthy 13.5 million this year — halfway between their peak in 2005 and their 30-year low in 2009. Now, such forecasts seem overly optimistic. Analysts say the swoon in financial markets and economic uncertainty could reduce auto sales by a few percentage points, shrink earnings and delay hiring in an industry that has been a recent leader in job creation.

"If it keeps going this way, yes, it's going to hurt business," says Jerry Seiner, who runs a group of dealerships in the Salt Lake City area that includes General Motors, Nissan and Kia.

Any reduction in sales would be especially painful for Toyota and Honda dealers, which are just starting to restock their showrooms after months of shortages brought on by Japan's earthquake.

In a sign of how sensitive buyers have become to stock swings, showrooms are active on days the market is up, but empty when it's down, Seiner says.

The Dow Jones industrial average has fallen 10% since July 22, with wild swings up and down along the way.

Gilbert Baldwin, 66, a retired auto worker from Ypsilanti, Mich., decided to wait for the market to stabilize before replacing his 2002 Ford Explorer. He was shopping for a new car last month, but now he's worried about higher gas and food prices and the possibility of Social Security cuts as Congress looks for ways to cut the deficit.

The lack of confidence isn't what car dealers want to hear, especially in August, usually a strong sales month as dealers clear lots of 2011 models to make room for 2012 cars and trucks. Carmakers report August sales in the U.S. on Sept. 1.

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