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Rapid fall seen in auto prices

September 05, 2008|From the Associated Press

NEW YORK — New vehicle prices are falling at the fastest rate ever recorded, a team of analysts said Thursday, squeezing automakers' profit margins at a time of slumping sales but also setting the stage for a sales rebound once the economy improves.

Two JPMorgan Chase & Co. analysts, auto analyst Himanshu Patel and economic analyst Marc Levinson, said in a research report that the average price of a new vehicle in the second quarter fell 2.3% from the year-earlier period to $25,632. That's the steepest drop recorded in the bank's 41-year-old survey, the analysts said.

The price drop comes as automakers are already coping with mounting losses and declining sales. Carmakers are shifting away from trucks and sport utility vehicles, which command high profit margins, toward manufacturing smaller cars, which are less profitable.

Although vehicle sales are expected to remain weak in the near term, the analysts said, the price decline is leading to better affordability and could translate into a big recovery for auto sales by the second half of 2009.

"If the labor market begins to improve in the second half of 2009 . . . buyers returning to the vehicle market may find the costs of owning a new vehicle to be unusually attractive," Patel and Levinson wrote.

The analysts attributed the decline in average price to two factors. First, demand among buyers has shifted from trucks to less-expensive smaller cars because of high gas prices, they said. Truck-based vehicles such as pickups, minivans and SUVs accounted for less than half of all sales in the second quarter for the first time since 2001, they said. Second, drivers are trading down within both the car and light-truck categories to cheaper, more fuel-efficient models, they said.

"Vehicles have become much more affordable to average consumers," Patel and Levinson wrote.

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