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Buying habits are the latest automotive import

The economy and environment are causing U.S. car buyers to adopt European values: They will buy gas misers and keep them longer.

May 04, 2009|Jerry Hirsch

* Tighter credit. With home prices declining, fewer people can tap their home equity to finance a new car purchase. "The home-equity people bought a lot of cars from us," said Fritz Hitchcock, who owns Puente Hills Toyota and several other dealerships.

During the real estate boom, home equity probably accounted for 1 million vehicle sales a year.

* Reliability. People who put off buying new vehicles for economic reasons are learning that modern vehicles last longer and consequently will delay future purchases.

Robert and Erika Paredes were wandering Norm Reeves Honda on Saturday, looking for a used car Robert thought would last a long time, have some panache and meet his budget.

Paredes liked the purr of the 197-horsepower engine in a 2007 Civic Si coupe. The Los Angeles computer tech worker figured "we could keep this car at least four, maybe five years." He thought the sporty Civic's style and power would hold its own with much of what's on the new-car market and was a better deal.

Before the recession, someone would see a neighbor, friend or relative with a cool new car and decide they wanted one too. Easy credit, either through the banks or financial institutions funding car and real estate loans or automakers' aggressive lease plans, made it easy to drive away in a new vehicle.

Now, people are learning that stretching a three-year car replacement cycle to four, or a four-year cycle to five, isn't much of a sacrifice, Conant said.

"And if enough people do that, your car doesn't look so old or outdated when you drop the kids off at school and you will wait longer to replace it," he said.

Not every analyst believes the current tumult in the industry and the economy will unalterably change the U.S. auto market.

Brown, the Iceology consultant, has a more sanguine view, based mostly on his belief that the self-indulgent U.S. consumer just can't resist the temptation of a shiny new car.

High gas prices or recessions can shock the system, changing what people buy in the short term or slowing sales, but whenever the problem eases, they "open up their wallets," Brown said.

"We don't see any sign that the fashion-statement importance of certain things such as autos, cellphones, sunglasses and sneakers has lessened for consumers. When we come out of this recession, that emotional need to buy will be just as strong," Brown said.

And despite the restructuring going on in the industry, Brown thinks auto companies will eventually fall back into the bad habits of overproduction, steep sales incentives and lease subsidies and loose credit that got the business into trouble in the first place.

"It is just going to take a couple of boom years when a company is selling out of a model or two before they start to add capacity to meet that short-term demand, and then the economy turns down and we are back in that same old cycle," Brown said.

"I would like to believe that the current situation will make both companies and consumers more pragmatic," Brown said, "but I don't think that will be the case."


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