In the latest sign that Hawai'i's economic growth is slowing, new car sales in the Islands fell by a larger-than-expected 11.7 percent in the first three months of 2007 compared with the same time last year, the Hawai'i Automobile Dealers Association said.

"Everybody's crying the blues," said Mike McKenna, president and chairman of McKenna Motors in Kailua.

The first-quarter figures could portend larger problems down the road, said Dave Rolf, executive director of the Hawai'i Auto Dealers Association.

With sales down significantly in just the first quarter, Hawai'i's auto dealers are bracing for the possibility that sales for the entire year could drop below 60,000, which Rolf considers the basement level of a healthy economy in Hawai'i.

"The car industry is always the canary in the coal mine," Rolf said. "As long as new car sales in Hawai'i are above the floor level of 60,000, things are pretty good. When they get below 60,000, the economy is beginning to show some challenges. We are the harbinger of the future."

From January through March, Hawai'i's auto dealers sold 14,994 new cars and light trucks statewide, compared with 16,979 in the first quarter of 2006.

The Hawaii Auto Outlook, which prepared the report, had forecast a 6.5 percent drop in sales for all of 2007, which would have resulted in a total of 62,823 new car sales.

"What we saw in the first quarter was a far steeper decline," Rolf said.

Leroy Laney, a Hawai'i Pacific University professor of economics and finance, said the latest new car sales figures are "a clear indication of a slowing economy. I am not surprised to see it."

While some auto experts point to gas prices and deployments of local troops to Iraq and Afghanistan, Laney believes the sluggish start to 2007 merely represents the cyclical nature of Hawai'i's economy and the inevitable slow-down in an auto selling industry that had been red hot the past few years.

"We've had at least a decade, 11 years, of expansion," Laney said. "But expansion doesn't go on forever. We had a pretty good slump in the 1990s (with annual sales of new cars in the 40,000 range), then they started to go back up as the economy started to improve and they were hitting records. There are certain things that bring an expansion to an end and we're at the end of that stage."

LOOKS LIKE A SLOWDOWN

Laney regularly uses new car sales as an economic indicator in his presentations and ranks them in importance with Hawai'i's visitor industry, home prices and the state of the construction industry.

"You look around and practically all of the indicators are suggesting a slowdown," Laney said.

The state's economy grew by 4 percent in 2005; growth slowed to 2.7 percent last year; and is expected to slow to 2.6 percent this year, according to state forecasts.

Hawai'i enjoyed record numbers of tourists for the past two years, welcoming 7.494 million visitors in 2005 and 7.492 million in 2006. This year, University of Hawai'i economists predict tourism numbers will drop by 0.2 percent while state economists are forecasting a 1 percent increase.

In the housing market, the median price for single-family homes sold on O'ahu this year through May is up 1 percent to $635,000, but that follows years of double digit growth. The median condominium price is up 6 percent to $322,000.

An April report by Carl Bonham of the University of Hawai'i Economic Research Organization and Bank of Hawaii chief economist Paul Brewbaker concluded that "Hawai'i's construction cycle is near or past its peak."

Last year, new car sales dropped 4.8 percent in the first quarter of 2006 versus the first quarter of 2005.

WAR DEPLOYMENTS HURT

This year, the biggest drop occurred on O'ahu, where new car sales were off by 15.1 percent, Rolf said. The next largest drop occurred on the Big Island, which saw sales fall by 6.3 percent.

McKenna and others believe slow auto sales here can be blamed, in part, on the repeated and extended deployments of military members.

At McKenna, sales to Marines from nearby Marine Corps Base Hawai'i make up 50 percent of all new car sales, said McKenna, a former Marine staff sergeant who has a close relationship with Marine officials at the base.

"We're off because the guys are not here," he said. "And the guys coming back on rotation are being told, 'Don't buy anything long term because you'll be going back in six months.' "

Even in the civilian community, McKenna said, the prolonged wars in Iraq and Afghanistan are shaking consumer confidence.

"People are definitely affected by the war," he said. "They don't want to take obligations on. Everything is up in the air. It's that way all over the nation."

As a result, McKenna and Rolf said, people are holding on to their existing cars and trucks longer and putting off new car purchases.

McKenna still sells Ford cars and trucks in Kailua, but sluggish sales forced him to close his Mazda dealership yesterday, and lay off four sales people.

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com.