It's becoming increasingly clear that the long-awaited upswing in domestic auto sales is still hanging fire. Although demand perked up slightly in June and July, as fleet purchases accelerated temporarily, sales of domestically produced cars in early August slowed to a 5.7 million-unit annual rate. That's not only their worst showing since mid-January but also below their sluggish pace in the same period a year earlier.
Focusing solely on auto sales, however, paints too dark a picture of Detroit's woes, says economist M. Kathryn Eickhoff of Eickhoff Economics Inc. The big news, she notes, is the sharp pickup in sales of light trucks, which account for more and more of consumer automotive demand and are primarily produced by the Big Three U.S. auto makers. Indeed, light-truck sales, which were up a striking 32%, were strong enough to lift total car and light-truck sales in early August by 11% over their year-earlier level.
The growing penetration of the U.S. consumer-vehicle market by minivans and sports-utility vehicles, which were invented by U.S. companies, are a classic example of a tail that is starting to wag the dog. Together with pickup trucks, sales of such light trucks equaled 25% of auto sales in 1982. By 1987, they were cruising at about 45% of the rate of car shipments. And by the second quarter of this year, the pace had accelerated to 55%, or more than one light truck sold for every two cars.
The implications for the economy of this continuing shift in consumer preferences is highly positive. For one thing, light trucks have accounted for virtually all of the pickup in domestic vehicle sales since their trough in early 1991, as domestically produced cars have gone nowhere (chart). And Detroit's Big Three not only dominate the light-truck market but have actually been gaining market share. Thus far in 1992, their share of U.S. light-truck sales is running at 86.1% vs. 82.9% in the same period last year, estimates auto analyst Harvey E. Heinbach of Merrill Lynch & Co.
Eickhoff points out that light trucks also account for all of the gains U.S. carmakers have posted against the Japanese in the past year. While car imports have declined somewhat as Japanese manufacturers have shifted production to the U.S., the share of U.S. auto sales claimed by Japanese imports and transplants has remained relatively stable. But the Japanese share of U.S. light-truck sales has fallen by over three percentage points, to under 14%.
All of this bodes well for Detroit and the economy. Overall, analysts believe that light trucks have higher price tags than the family cars they are replacing in consumer purchases. And although the light-truck market is highly competitive among U.S. companies, the weak Japanese rivalry thus far means that profit margins are under less pressure than for most autos. "As long as the light-truck market keeps expanding," says Eickhoff, "U.S. companies and the U.S. economy are likely to benefit.