Fears of pricey gas hold down sales of big SUVs and trucks as Ford shows the clearest sign of improvement
Auto sales stabilized somewhat in June. But the pain was spread unevenly among carmakers and the types of vehicles, as fears of gas-price increases continued to slaughter sales of big sport-utility vehicles.
Overall, total auto sales were down 27.7% last month compared with June 2008, according to Autodata. Year to date, sales are down 35.1%. The recession continued to weigh heavily on consumers, as autos sold at an annual pace of 9.7 million vehicles, below the miserable 10 million selling rate forecasted by several analysts for June. As recently as five years ago, the annual sales rate was 17 million vehicles.
Ford (F) posted a decline of just 10.7% in June, the lowest drop of any major automaker. That stood in stark contrast to the fortunes of the two members of the Big Three that sought bankruptcy, General Motors and Chrysler. Chrysler saw sales tumble 48% as it sold practically no vehicles to rental fleets last month and its factories were idled during Chapter 11 proceedings. GM, which is just behind Chrysler in its own bankruptcy reorganization, posted a 33% sales decline. GM sales and marketing chief Mark LaNeve said he is hopeful that GM's Chapter 11 process won't last too long. "People are looking for a quick exit from bankruptcy like Chrysler had," he said.
Small and Midsize Cars Sell Better
Toyota (TM) and Honda (HMC) have not been discounting vehicles as deeply as some rivals and they are paying for it: Toyota's U.S. sales fell 27% and Honda's were down 30%. "Consumers are really focused on price/value right now," says Edmunds.com analyst Jesse Toprak. Nissan (NSANY), though, with higher incentives than its Asian rivals, saw sales drop by only 23%. Subaru continued to impress by posting a 3.4% sales gain June-over-June.
Overall, small and midsize cars did better than larger vehicles last month as a new frugality settled in with consumers. Combined retail sales of small cars, such as the Honda Fit and Toyota Yaris, and subcompacts, such as Toyota's Corolla and Ford's Focus, continued to climb. Those cars accounted for 22.1% of sales last month, vs. 19.5% in February.
"When gas prices came down last fall, a lot of so-called pundits on cable TV said consumers were returning to gas guzzlers, but that's just not the case," says Ford senior sales analyst George Pipas. "People who think that is happening are only looking at the total SUV sales number, but that growth is coming from car-based crossover SUVs, which may as well be counted as cars and not trucks."
Indeed, maybe last year's spike in gas prices above $4 a gallon nationally has a more lasting impact than many believed. Large SUVs, notes Ford, were just 1.7% of sales last month for the industry, vs. 2.4% last year. Five years ago, vehicles such as the Ford Expedition and Chevy Tahoe accounted for 5% to 7% of annual sales. Even with gas around $3 a gallon, the falloff in total sales and popularity of such SUVs looks long-lasting to Pipas.
"Cash for Clunkers": Truck Sales Stimulus?
Hyundai, which launched a program this week that guarantees a year of $1.49-a-gallon gas for buyers of its new cars, said that 40% of consumers it surveyed said they were not buying a new car out of fear that gas prices will soon return to $4 and above.
"Automakers still earn much more profit selling a pickup truck or big SUV than they do selling a small car, and that is one of the reasons profits will still be under enormous pressure even as overall sales improve over the next couple of years," says independent marketing consultant Dennis Keene. "And that goes for Toyota and Nissan, not just Detroit."
That harsh reality also explains why the "Cash for Clunkers" legislation signed by President Obama last week was specifically written to stimulate sales of pickup trucks and SUVs, rather than focus on selling more gas-thrifty passenger cars. It is no coincidence, says one Washington-based auto industry official, that consumers have to have an old vehicle that began with gas mileage below 18 mpg and can get a $3,500 government voucher for buying another truck that gets 2 mpg more than the trade-in.
"Those numbers were hashed out specifically to benefit Detroit's pickup business, so they could trade in an old pickup for a new one," says the industry official, who asked not to be named. "People who own cars are already looking for higher fuel-economy vehicles, so we don't have to give them more money."
Car-buying Web site Edmunds.com says that its site traffic for people looking for more fuel-efficient cars spikes when there is a sudden lurch in gas prices. "But we have consistently seen more traffic searching for higher fuel-efficient cars since last year, even as gas prices came down, and that does seem like a permanent change," says Edmunds.com's Toprak.
The Cash for Clunkers bill goes into effect later this month, when consumers can start trading in older cars and get government vouchers for up to $4,500. Besides the benefit to the pickup business, analysts expect that it will boost Toyota and Honda sales because they have the most cars that qualify for the program as a percentage of their overall showroom models. Toyota has 15 vehicles that can be bought through the program, as well as five Lexus models and all three Scion models. Chrysler and Jeep brands, by contrast, have just two, though Dodge has a few more.
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