Auto Sates Drop

Although housings woes have dominated the headlines for the last year or so, the auto sector is also experiencing some big problems:

The auto industry's troubles, once centered on Detroit, are spreading to other manufacturers amid a slump in U.S. vehicle sales that is likely to turn 2008 into the weakest year in at least a decade.

The industry yesterday reported a 3% drop in sales of cars and light trucks in December, according to Autodata Corp., as housing woes and high fuel prices scared increasing numbers of consumers away from showrooms.

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Overall in 2007, industry sales declined 2.5% to 16,556,423, and most analysts expect more gloom in 2008. They see increasing difficulties for manufacturers, even among some of the foreign companies that have gained share in the U.S. market in recent years.

Rising gas prices, an already heavily indebted consumer and decreasing consumer confidence are playing a factor.

Autos are durable goods. Because they are goods that last a long time, we can use them as soft-of proxy for consumer sentiment. Because a car requires a long-term commitment of 3-5 years, people will probably only but a car if they are confident the future is at least decent. Dropping sales may be an indicating people aren't that confident in the coming 3-5 years.

A "confluence of factors," including the widespread credit crunch, high gasoline prices, a housing downturn and "critically fragile consumer confidence," has crimped Toyota's expectations, Mr. Miller said. In 2008, "we see another challenging year," he added.

Bottom line -- consumers aren't happy right now and are pulling in their spending wings.