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Jeep Dealer’s $50,000 Sticker Shock Captures Auto Sales Stress

GM and Ford Can’t Shake Anguish Over Where U.S. Sales Are Headed

(Bloomberg) -- Robert Loehr’s dealership is hanging in just fine, much like Fiat Chrysler Automobiles NV’s sales did last quarter. But just as investors doubt the U.S. car market can sustain near-record results for much longer, the Georgia retailer is apprehensive about a key issue: sticker shock.

“Prices are crazy on cars nowadays -- all of them,” said Loehr, who sells Jeeps, Rams and other Fiat Chrysler models from a showroom northwest of Atlanta and has been in the business for 35 years. “They’re crazy to me, and I do it every single day, all day long.”

Jeep Dealer’s $50,000 Sticker Shock Captures Auto Sales Stress

New Jeep Gladiators -- the truck version of the rugged Wrangler model -- can easily fetch $50,000 and are emblematic of a trend toward eye-popping prices carmakers are commanding for the pickups and sport utility vehicles making up an ever-greater share of their sales. Even as manufacturers and lenders increasingly stretch out auto loan terms to more than seven years and subsidize interest rates with incentives, average monthly payments keep climbing.

Affordability could become more of a risk if the mounting concern that the American economy is headed for recession ends up panning out. Those fears drove the benchmark S&P 500 down more than 2% on Wednesday, to the lowest since August. General Motors Co. and Ford Motor Co. shares slumped by even more.

Jeep Dealer’s $50,000 Sticker Shock Captures Auto Sales Stress

The U.S. car market has probably reached the end of a great run, according to Brian Irwin, who leads the automotive and industrial practice for consulting firm Accenture. “It’s a step down from where we thought we would be a few months ago,” Irwin said in a phone interview. “I expect to see stronger incentives coming out.”

For more on U.S. auto sales, click here for Bloomberg’s TOPLive blog

While Jeep’s Gladiator is drawing customers into Loehr’s dealership, many are balking at $800-a-month payments they end up being quoted. He’s been able to convert much of that foot traffic into sales of lower-priced Jeep models, but still thinks automakers ought to do more banding together on engine development and parts-sharing to cut down costs and put a lid on prices.

GM, Ford and Fiat Chrysler’s quarterly results looked less dire than the big percentage drops that other carmakers reported Tuesday for September, in part due to fewer selling days in the month than a year ago. But on both days, contraction was a common theme, both for the automotive market and the broader manufacturing sector. A closely watched gauge of U.S. factory activity flashed the worst reading since the end of the last recession.

Third-quarter deliveries rose 6.3% for GM, a smaller increase than analysts expected, while Fiat Chrysler’s 0.1% slip and Ford’s 5.1% decline beat projections. Those figures weren’t enough to dispel the narrative set by rivals a day earlier, when Nissan Motor Co., Toyota Motor Corp. and Honda Motor Co. trotted out ugly numbers for last month.

Auto loan interest rates dipped in September to 5.7%, the lowest this year, and the average term approached 70 months, according to market researcher Edmunds. Despite all that, monthly payments rose from a year ago as the average transaction price on a new car exceeded $37,000 -- a 14% jump from 2014.

Ford’s SUVs struggled in the third quarter, in part due to tight inventory of its redesigned Explorer SUV. But sales of its best-selling Escape crossover also dropped, falling 7.2%. Despite the downward trend, U.S. sales chief Mark LeNeve remains upbeat.

“The consumer, despite all the noise in the market, is still holding up remarkably well and kind of carrying the industry,” he said in a phone interview. “With the limited availability we had with Explorer and Escape because of the changeover, we’re actually pretty pleased with the quarter and we’re actually set up well for Q4.”

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net;Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net;David Welch in Southfield at dwelch12@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Chester Dawson

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