In Tough Times, SUV Makers Double Down

As sales of SUVs and pickups continue to fall, automakers carefully tailor their marketing and incentive efforts region by region

Bad as U.S. light-truck sales were in 2007, they have taken a steep turn for the worse in 2008.

Total light-duty truck sales fell 2.3%, to about 8.8 million, in 2007, but dropped 12.1% in the first quarter of 2008 vs. the year-ago quarter, to about 2.1 million, according to AutoData of Woodcliff Lake, N.J. Within that number, the move has accelerated away from traditional pickups and SUVs and into more fuel-efficient, car-based crossovers.

One outcome is that automakers are scrambling to tailor their marketing and incentive efforts region by region. Ford (F), Toyota (TM), and other competitors change their offers and their advertising weight to meet regional conditions.

In areas of the country where truck sales remain relatively strong, like Texas, additional advertising and marketing money can be a better investment than in depressed markets. Beyond a certain point in a down market, demand is limited to people with a practical need to replace a worn-out vehicle. They may need help with a trade-in allowance or a down payment, but they have a practical need to buy. Advertising could have little effect.

In a similar way, politicians may ignore the people whose minds they can't change and spend most of their marketing and advertising efforts to sway the undecided, where the money will do the most good. To mix metaphors, in those markets where there is still some demand for trucks, there are people in the "undecided" column.

"In Texas, you will get more bang than you will in other markets," says George Pipas, U.S. sales analysis manager for Ford Motor.

The Housing Effect

The truck markets that are hardest hit are those most affected by the burst housing bubble, like Florida and California; plus other regionally depressed areas, like the Gulf Coast, still recovering from Hurricane Katrina; or industrial Michigan, where the Detroit Three themselves are cutting tens of thousands of jobs, creating a widespread ripple effect.

For instance, in a list of 215 U.S. markets, SUV registrations fell the most in the Biloxi-Gulfport (Miss.) area, down 15.5% in 2007 vs. 2006, according to R.L. Polk. The next-worst market was Flint-Saginaw-Bay City, Mich. The Miami-Fort Lauderdale market was the biggest market near the bottom of the list, with SUV registrations down 8.1% in 2007.

"The markets that are feeling housing pressure are taking almost all the brunt of any decline in full-size [pickup] trucks and SUVs," says Jim Farley, group vice-president, marketing and communications, for Ford.

Farley adds that in some slow markets, in response to falling trade-in values for full-size pickups and medium and full-size SUVs, Ford has redirected its incentive money into cash-back incentives, as opposed to low interest rates. The cash is aimed at helping customers who are "upside-down." That is, they owe more on the trade-in than it's worth. The customer has to borrow more if possible or come up with more cash.

"Help with the Trade-In"

"What we see so far is that in geographies where customers are more under pressure, the more effective [incentive] programs are going to cash, to help with the trade-in value. In the Carolinas, the Orlandos of the world, we are starting to set the effectiveness of those programs that give the customer a little cash to help with the trade-in value," he said in an Apr. 1 conference call with auto analysts and reporters.

In contrast, SUV registrations increased last year in markets such as Harlingen-Brownsville-Weslaco-McAllen, Tex., according to Polk. Houston, with SUV sales up 20.3%, was the biggest market near the top of the list of most-improved SUV sales, the data say.

Even in those markets where SUVs and pickups sold relatively well in 2007, the key word is "relative," Pipas says.

"The large-SUV market in Texas has always been greater than any other. But again, I'm speaking relatively. Contrasted with three or four years ago, the market is down," he says.

SUV registrations peaked in 2004 at just over 4 million, according to Polk. That includes what Polk considers mini-SUVs, like the Jeep Wrangler; mid-size SUVs like the Ford Explorer[]; and full-size SUVs like the Tahoe. In 2007 the segment was about 3.8 million, Polk says. From 2006 to 2007, full-size SUV registrations fell about 10%, while smaller SUVs improved.

From Bad to Worse

But as the U.S. economy has soured into 2008 and gas prices have continued to climb, the sales downturn has gotten worse for truck segments that were down already, like large SUVs and large pickups. Not only that, the downturn now extends to truck segments that had been doing O.K., especially small SUVs like the Wrangler, the Toyota FJ Cruiser, and the Nissan Xterra.

Small SUV sales posted a 19.3% increase in 2007, to 327,191, according to AutoData. But in 2008, small SUVs were off 29.4%, to 60,998, year-to-date through March.

Luxury SUVs, which outperformed large and mid-size SUVs from nonluxury brands in 2007, have also taken a turn for the worse in 2008, although they are still better off than most nonluxury truck segments. AutoData said luxury SUV sales fell 2.7% in 2007, but the segment fell 7.7% in the first quarter, versus the year-ago quarter.

Bob Carter, Toyota Div. group vice-president and general manager, said in an Apr. 1 conference call that Toyota underestimated demand for the highest trim and equipment levels for the new Sequoia SUV.

"We under-forecast what demand is, on the top level," he said. The thing is, while Sequoia sales increased 13.1% in the first quarter, Toyota sold only 7,850 units. That's not a drop in the bucket in terms of the industry truck downturn.

Click here to see the best- and worst-selling SUVs in the country.

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