An unsettling drop in new car sales has produced an unprecedented round of television ads featuring local new car dealers smiling on the Capitol steps as if for a family photo.
The pitch: “You know us.” The subtext: “Come in and buy a new car—preferably several.”
Frank Lopinto, general manager for Salsbury’s Dodge City, says the spots were the brainchild of the Baton Rouge New Car Dealer Association, of which he’s president. The group was first approached by Cox Communications about some kind of campaign, and WBRZ-TV decided to make it a free public service announcement.
It’s too soon to know whether the ads will have any impact on local car sales, which are off 20% to 25% [compared to 30% to 50% nationally], but the effort is definitely in the best interests of everyone involved: the dealers and those with whom they advertise.
“We all do business with them,” Lopinto says. “We aren’t advertising as much with them, so they’re trying to keep our business going.”
Lopinto hopes Baton Rougeans get the message: “That we’re all invested in our community with employees and friends and real estate, and we’re not going anywhere.”
It’s frustrating for him and other new car dealers that consumers are skittish even though Baton Rouge is doing fine economically compared to other parts of the country. The deals are sweet.
Not only do you get employee pricing if you buy a Dodge, Chrysler or Jeep these days, you also get a rebate and 0% financing. Lopinto has never seen anything like it.
“Other times in my career, you either have to take the lower interest rate or you take the rebate,” he says. “Never before has there been the rebate and the 0%.”
The jury still is out on the dealers’ sales pitch gaining traction with customers. Baton Rouge’s new car industry is preparing for a lean couple of months, if not a lean year. This year’s sales are expected to match last year’s, which weren’t great, and dealers will adjust numbers of personnel, inventory and advertising as necessary, Lopinto says.
On the other hand, parts, service and dealers’ used car operations are expected to do well—an indication people are hanging onto their vehicles longer. So if the deals are so great and Baton Rouge is so recession-proof, why aren’t people buying cars?
“It’s media brainwashing,” Lopinto says. “You hear it’s bad so much, you start to believe it’s bad.”
Sandy Daly, president of the Greater Baton Rouge Association of Realtors, thinks buying a new car is a great idea—as long as you buy a new house to go with it.
“It is a fabulous time to buy a home,” she says. “The difficulty is getting that message out to the local market. It’s a difficult message to get across and get people to believe it.”
Baton Rouge didn’t have a huge housing bubble to burst, so the market here is stable compared to places like California, where foreclosures swept through like wildfires. Home sales are down locally, Daly notes, but property values are steady—even registering a slight increase from 2007 to 2008.
She thinks Baton Rouge’s current aversion to homebuying is “75% psychological,” but identifies other reasons people may be holding off. Though the market has remained fairly stable to date, people are anticipating a big drop in property values, though Daly doesn’t think it will happen.
People also are expecting a huge drop in interest rates, but she doesn’t think that will happen, either. Also, potential buyers might have been waiting to see whether the federal stimulus bill includes the proposed $15,000 tax credit for first-time homebuyers. Such a credit would light a fire under the market and create “tremendous competition” for housing inventory, Daly says.
“It bodes well to buy now to avoid the rush before everybody else gets in competition for the same home,” she says.
That is if you can find a way around the obstacle of higher fees that mortgage lenders like Fannie Mae and Freddie Mac are charging—sometimes double what they were before the housing crash. It makes homeownership that much more difficult, even for solid borrowers.
But the elephant in the room as far as why fewer people are darkening the portals of realtors and dealerships might be the market. Investments and retirement savings are in the basement. Not even Baton Rouge is immune.
“It is the fear I think I’m OK, but what’s it going to be like tomorrow?” Daly says. “People feel less wealthy today than they did six months ago.”
But it’s all the more reason to buy a house, she says. Everything else might be in the toilet, but Baton Rouge residential real estate is still a safe investment.
As Omni Bank Mortgage Division Chief Jared Gary observes, fear engendered by regular pronouncements of economic doom is a hard thing to counter.
“People respond to fear more than they do to optimism,” he says. “You hear it over and over and over; you cannot get away from it.”
Mortgage refinancing applications have doubled because of low rates, Gary says, and he’s optimistic mortgage applications for actual purchases will pick up, too.
“There’s an opportunity out there for a lot of people to refinance and purchase homes,” he says, “and if they wait too long they’re going to miss that window of opportunity.”
Ron Menard, owner/investment adviser with Menard Financial Group, isn’t surprised car and home sales are down. One client’s employer watched his revenue drop from $35 million to $7 million a year. Layoffs loom. People near retirement age, watching their portfolios drop like a feather in a vacuum chamber, are “starting to get panicky,” Menard says.
Defensive portfolio management is vital in the current climate, and investors should have their portfolios reviewed quarterly at minimum.
“We’re all optimistic about the future of the market, but the current state of the market—we’re a little fearful of that because of what’s been going on nationally as well as internationally,” he says. “You’re certainly starting to see some ripple effects from the national economy rippling into local area.”