Fewer can spare money to buy cars in flat economy

In yet another sign of the state's struggling economy, new car and truck sales in Minnesota plummeted 14.5 percent in 2007. That contrasts with a nationwide decline of slightly more than 2 percent and was significantly worse than dealers had projected just several months ago. Perhaps just as ominous: They don't expect sales to get better anytime soon.

Potential new car buyers didn't even opt to buy used vehicles last year, either. Those sales tanked 12 percent in 2007, according to a report issued this week by Minnesota Automobile Dealers Association (MADA).

Dealership sales account for 19 percent of the state's retail sales.

"These are disturbing numbers," said Tom Stinson, Minnesota state economist. "But in terms of the factor that contributes to the weaker economy in Minnesota, the housing and construction areas have been hit even harder than the auto industry. ... This is just indicative of a weaker economy than people expected at the start of 2007."

It doesn't spell disaster for the state, he added. The poor sales aren't something that "will bring the Minnesota economy to its knees."

Still, dealers predict they are headed for further pain. For 2008, MADA predicts another 3.4 percent decline.

"But I think that is too rosy," said MADA President David Buerkle, owner of Honda, Hyundai and Acura dealerships. "We don't know where the economy is going to go." He said the association's 460 dealers had "just a terrible first quarter."

Late 2007 appears to have been the worst for new car sales. In a report issued in January, which included figures based on sales through November, the dealers had forecast an 8.9 percent decline. Instead, they fell 10,000 more than that forecast to a total of 155,825 cars and trucks for the year. Minnesota's used car sales fell 12 percent to 373,728 units.

MADA officials, often an optimistic bunch, didn't even try to spin the numbers. "The economic events that have unfolded over the past several months have not been good news for the Minnesota automotive market," the report said. The biggest threats were tight credit, rising unemployment, falling home values and extreme consumer debt.

Domestic automakers were hardest hit, with sales falling 20.4 percent last year. European car and truck sales fell 17.2 percent, while Japanese and Korean models, which typically get better fuel economy, fell 4 percent.

Gas prices take a toll

Soaring gas prices, which hit $4 a gallon in Chicago and $3.55 a gallon at some Twin Cities stations this week, have some consumers swearing off their once-beloved sport-utility vehicles and even their cars and turning to light-rail, buses, scooters and bikes.

Perhaps not surprisingly, Minnesota's Hummer sales plunged 42 percent to 233; trucks and Cadillac sales dropped 34 percent to 1,474 vehicles.

Other brands suffering steep declines included Pontiac, Buick, Saab, Volvo, Volkswagen and Jaguar.

Drivers nationwide have been shedding gas guzzlers and moving to more fuel-thrifty options. While total vehicle sales fell 2 percent to 16.1 million vehicles, midsize and large vehicle sales fell 5 percent last year, according to data from J.D. Power & Associates. Sales of fuel-efficient compacts climbed 4 percent last year.

Midsized sport-utility vehicles, not including luxury brands, fell 21 percent. These vehicles, such as the Ford Explorer, used to be some of the best selling models in the country, but now none of them, which are built on less fuel-efficient truck frames, cracked the top 20.

Dealers often rely on higher-margin parts of their business -- service, parts and used-car sales -- to offset sales declines. But some haven't been able to do that.