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Buyers Are Back After Shutdown : News

The federal government shutdown kept some would-be car shoppers away from dealerships in the first half of October, but forecasters still expect U.S. auto sales to rise at least 12 percent this month.

The debt ceiling battle in Congress dinged consumer confidence and added to concerns lingering from September, when the industry broke a 27-month streak of consecutive gains.

Some dealers near Washington said last week that traffic still had not rebounded since the government resumed full operations Oct. 17, while others said they saw few effects from the 16-day shutdown.

"Whatever the reason, for us it's trending to be one of the better months of the year," said Jim Bone, dealer principal at Nissan Santa Rosa, 50 miles north of San Francisco. But Bone said business at his adjacent Kia store has been "off significantly" in October.

Forecasts call for October sales to be about 7 percent higher than in September, despite recent warnings by several auto executives that the shutdown could cause sales to fall this month. Hyundai Motor America CEO John Krafcik said Oct. 15 that demand could be 5 to 10 percent lower than in September.

Analysts from LMC Automotive, Kelley Blue Book and Barclays Capital said they think the industry's seasonally adjusted annualized selling rate would climb to an estimated 15.4 million, from 15.3 million last month and 14.4 million in October 2012. Edmunds.com is forecasting a 13 percent increase and a SAAR of 15.5 million.

Automakers are scheduled to report October sales on Friday.

"It looks like the government shutdown ended just in the nick of time," Jessica Caldwell, Edmunds' senior analyst, said in a statement. "The week-by-week data suggest that consumers started to get jittery by the middle of the month.

"But with the government back to work, most lost sales should be made up in the latter half of the month, and the industry's momentum will continue the pace it enjoyed before the disruption in Washington."

TrueCar.com reported a 28 percent decline in daily sales in the first half of October, when more than 800,000 government workers were furloughed, compared with the first half of September. It called the drop "significant" and said state-by-state declines varied from 63 percent in Alaska, which has a high proportion of federal employees, to just 1 percent in Mississippi.

'Disruptive impact'
"There is no question that the federal government shutdown had a disruptive impact on sales," Mike Jackson, CEO of AutoNation, said during a conference call to discuss third-quarter earnings. "Business was very strong from August going through Labor Day, and once the prospect of the government shutdown became more certain it definitely was disruptive to sales."

Jackson said that traffic began picking up after the shutdown ended and that sales for the rest of the year should keep rising as a result of new products and continued pent-up demand from people who need to replace their vehicles.

"We'll have to wait until we announce our October results to see how that all worked out," Jackson said, "but I expect the increases we saw throughout the year will now resume in the fourth quarter."

LMC last week reduced its full-year retail-sales forecast by 100,000 units, to 12.8 million. Its forecast for total sales in 2013 is unchanged at 15.6 million, matching the projections by KBB and Barclays analyst Brian Johnson.

Through September, automakers sold 11.8 million vehicles, the most since a nine-month total of 12.4 million in 2007. Since the recovery began in 2009, the fourth quarter has accounted for slightly more than 25 percent of annual sales on average; a continuation of that trend would result in a full-year total of 15.7 million.

The homestretch
If 4th-quarter trends for the past 4 years hold, U.S. sales will reach 15.7 million in 2013. Some forecasts aren't that optimistic.

Jan.-Sept.* Full year* % Sold in Q4
2009 7.8 10.4 25.1
2010 8.6 11.6 25.6
2011 9.5 12.8 25.5
2012 10.9 14.5 24.8
2013 11.8 15.7** 25.2**
*Units sold in millions
**Estimated based on 2009-12 average
Source: Automotive News Data Center

Congress still an issue
Jeff Schuster, LMC's senior vice president of forecasting, said he still expects sales to surpass 16 million units in 2014. But he warned that demand could take another hit from Congress early in the year.

"There is a higher risk that consumer confidence could be distracted again in the first quarter if, as expected, the debt-ceiling gridlock returns," he said in a statement.

Ford Motor Co. CFO Bob Shanks said the company is "cautiously optimistic" about the prospects for the U.S. economy. Although consumer confidence ticked lower during the shutdown, Shanks said, Americans have to some degree "become immune to everything going on in Washington."

Edmunds and KBB predict Toyota and Ford will report the largest gains among the eight largest automakers. Both expect General Motors, Hyundai-Kia and Volkswagen to lose market share with below-average increases.

Chrysler should report its 43rd consecutive year-over-year monthly increase, they said, though Edmunds expects the company's share to fall slightly.


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