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Small Cars Post Big Sales as Buyers Downsize

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September 27, 2007 by   Leave a Comment

With gas prices hovering in the $3 per gallon range, it’s probably no surprise that sales of smaller cars are increasing. But, according to a report by Bankrate.com, what may be shocking is just how significantly sales of small or compact cars are up, and at what cost to consumers.
Online car information provider Edmunds.com said compact car sales marked a record month in May, grabbing 21% market share. For every five new cars sold that month, one was a compact.
“It’s up dramatically,” said Edmunds.com industry analyst Jesse Toprak. As a vehicle category, compacts have enjoyed the biggest growth for the past five years, averaging about 17% of monthly sales, Toprak said. But the category’s gotten even hotter lately.
“If gas prices stay where they are or go higher, that’s going to enable compacts to get near 20% by the end of the year,” Toprak said.
In its report on 2006 new vehicle sales released last month, the National Automobile Dealers Association (NADA) says that the small-car category saw the second-highest growth over the year. The 4.7% increase trailed crossover utility vehicles, which came in at 9.1%. Considering that total sales were down about 400,000 vehicles from 2005, however, buyers’ move to smaller vehicles is more significant.
Currently, the trend looks even stronger considering the relatively skimpy incentives carmakers are offering for compacts. Toprak said incentives like cash-back offers averaged only $1,114 for the compact category in May. Large SUVs, by contrast, were dangling incentives averaging $3,424 per unit in May.
“It shows the strength of this category,” Toprak said. “People are willing to buy at a premium.”
The trend isn’t all due to gas prices, either. Carmakers have created an influx of new small cars that have proven popular, like the Mini Cooper, Toyota’s Scion and Prius, and Mazda 3.
“Compact cars in the last couple years became a bit fashionable, especially in the metro areas,” Toprak said.
Don’t expect sport utility vehicles and minivans to suddenly vanish from the roads, however. The market for large vehicles still exists, as there are few practical substitutes for lots of seats.
“People are not trading in their seven-passenger Ford Expedition for a Ford Focus,” Toprak said.
Rather, middle-class families who purchased two large vehicles – perhaps because of attractive incentives – are frequently choosing to downsize one of them for something more efficient that will be used as the main commuting vehicle.
“We see very strong resistance in trading in both large vehicles,” Toprak said. “A lot of families, especially with kids, insist on having one large vehicle.”

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