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Consumers clutch cars longer, choking March sales

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KIMBERLY S. JOHNSON
March 28, 2009
— She wants a new car, but Pamela Davies is still driving the very first one she purchased.

Even with 81,000 miles on her 2001 Toyota RAV4, the stay-at-home mother of two young children isn't ready to give it up. Her husband's 1999 Corolla, with 136,000 miles on it, is fine for now, too.


"We had originally planned to replace the RAV4 with a minivan when we had a second kid, but then I realized I could fit two car seats in it and put it off," said the North Chelmsford, Mass., resident. "Until one or both of my kids' knees are squished up around their ears from being crammed in the back seat, or the car stops running, it's staying with us."


Davies said her family could afford a new car, but the two they have are fully paid for. She and her husband would rather not take on a monthly car payment as they save for college and retirement.


The recession has forced the Davies and many other Americans to rethink their spending habits. One result: They're making their old cars last longer.


According to J.D. Power and Associates, the average age of vehicles traded in at U.S. car dealerships in February was 6.1 years. That's up from 5.6 years a year earlier. That trend is expected to contribute to another month of depressed auto sales when carmakers report their March results on Wednesday.


Consumers are starting to see vehicles as long-term investments, said Trevor Traina, founder and chairman of the car ownership Web site DriverSide.com. Automakers for the most part have stopped offering leases, which allowed people to drive a new vehicle for $200 or $300 a month and repeat the cycle every few years. People are taking better care of their old wheels instead.


Davies, 31, has been eyeing a new $34,700 Toyota Highlander hybrid. Instead of giving in to the impulse, the family spent about $1,000 last year on car maintenance, including four new tires, a few oil changes and regularly scheduled tuneups.


"We're holding on until the bitter end," Davies said. The family would have to get another car should their Corolla die, but she said they would purchase a used one, or something less expensive than the Highlander.


Car owners like Davies are one reason auto parts stores such as AutoZone Inc., Advance Auto Parts Inc. and O'Reilly Automotive Inc. have seen rising sales.


They're also one reason the new car market is in the tank.


"The desire to own a car for two to three years is dead," Traina said. "It's like people have woken up from some kind of consumer dream of flipping a car the way you change clothes."


Deutsche Bank Securities analyst Rod Lache estimates that U.S. auto sales for March will decline 43 percent from a year ago to a seasonally adjusted annual sales rate of 8.6 million vehicles. That would be lowest figure since Ward's Automotive Group began tracking monthly sales data in 1980. There were 16.1 million vehicles sold in 2007.


Wachovia Capital Markets analyst Richard Kwas forecast a March annualized rate of 9 million vehicles, just under February's rate of 9.1 million. J.D. Power is predicting an annualized rate of 9.2 million for March.


Such poor sales make it more difficult for U.S. automakers to survive even as they reduce costs through job cuts and other restructuring efforts. General Motors Corp. and Chrysler LLC are requesting more aid from the government on top of the $17.4 billion they've already received. Ford Motor Co., although not seeking aid, has drawn down the remaining $10 billion on its revolving credit line to help it get by.


It's not much better for foreign automakers like Toyota Motor Corp., which expects its first annual net loss since 1950.


U.S. automakers have said the Obama administration's stimulus efforts and aid to their financing arms should help spur new car purchases, particularly in the second half of the year, but it's unclear if that's enough to bring about a significant turnaround.


"The remainder of the year continues to be an open question," said Gary Dilts, J.D. Power senior vice president for global automotive operations, in a report this week. "We're still seeing economic headwinds and reduced consumer demand for new vehicles, making it a tough marketplace."


Automakers and analysts say there is demand for new cars. The recession, however, has kept that demand pent up.


All the news coverage of the economy being as bad as it was in the 1930s has instilled a sense of paranoia in Liz Nelson. The 25-year-old public relations account executive from Santa Clara, Calif., has been driving a 1996 Acura Integra since 2003, but she's having second thoughts about a new car because of what she calls "the downfall of the economy."


"My car sounds like it's dying. Every morning when I start my car, I pray that it will get me to the train station so I can make it to work," she said.


Nelson is the type of person the automakers are trying to rope in. She realizes that rebates and financing offers could give her an incredible deal on her dream car, an Infiniti G35 Coupe.


She plans to purchase a used car before the end of the year instead.



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