Young buyers are inching back into the new-vehicle auto market after several years on the sidelines, helped by easing credit and a slightly improving job market.
“Younger buyers have returned to market at a higher rate than any other age category,” according to a recent report by J.D. Power and Associates’ Power Information Network.
The young buyer group — from teens through age 35 — is a hefty 23 percent of so-called retail buyers, the highest since 2008, according to Power. The retail sales category excludes multiple-vehicle sales to fleet buyers, such as rental and taxi companies.
Data from Polk, which tracks new-vehicle registrations, not sales, found a similar move, showing buyers 18 to 34 provided 12 percent of all new-vehicle registrations from January through July — the highest since 16.4 percent in 2007.
Power’s Thomas King, a senior director, says high used-car values could be helping younger buyers with something to trade in. Credit is also easier to get now, he says, and the group is seeing growth in longer-term loans, 72 months and over, which cuts monthly payments.
Younger shoppers don’t typically buy high-profit vehicles, at first. But if they can be kept loyal, automakers believe, they’ll move up to very profitable models as they get older and richer.
The first half of 2012 set the record for the highest-ever fuel efficiency for new passenger vehicles entering the U.S. market, according to industry analysts Baum & Associates.
In a press release the company stated that the country reached this record mile per gallon level without relying on higher small car sales – a significant shift from a pattern going back to the 1973 Arab oil embargo where similar gains were achieved only when consumers moved to smaller vehicles in the face of higher gas prices.
From January to June of 2012, the average fuel efficiency of new passenger vehicles was 23.8 mpg, improving by 1.1 mpg the record of 22.7 mpg set over the same six months in 2011. Baum & Associates calculated the average fuel efficiency using monthly fuel economy data from the University of Michigan and sales data from Wards Automotive.
Importantly, the projected new auto sales figure for 2012 is 14.2 million units, up a strong 1.5 million vehicles over 2011.
“Thanks to a bumper crop of fuel efficient models in the most popular segments, consumers don’t have to choose between fuel efficiency and performance,” said Alan Baum, principal of Baum & Associates. “No matter what type of vehicle you want, midsize car, minivan, SUV or pickup truck, carmakers are now upping fuel efficiency performance across the board. The new era of auto fuel efficiency is truly here.”
Baum pointed to three key factors accounting for these trends that fly in the face of past experience during periods of high gas prices:
• There are now significantly more fuel-efficient vehicle choices of all sizes for consumers. The number of high fuel efficiency, high volume vehicle models has more than doubled since 2009 from 28 to 60, according to analysis by Baum & Associates. These include fuel-efficient models of small cars, midsize cars, and crossovers (CUVs). A May 2012 Consumer Reports survey showed that fuel efficiency is by far the #1 concern for prospective auto buyers.
• Consumers are buying larger fuel-efficient vehicles, not just small high-MPG cars. In an important shift, the 2012 year-to-date increase in the market share of small cars and crossovers over the same period in 2011 is just 0.4 percentage points. (By contrast, sales of small cars and crossovers jumped by a much larger 4.8 percentage points during the previous period of high gas price from 2007 to 2009.) The important shift here is that consumers are embracing larger fuel-efficient vehicles.
• A “perfect storm” of factors coincided with industry roll-out of vehicles under new federal higher MPG standards. Model year 2012 is the first year of a long-term federal program that requires an average laboratory rating of 35.5 mpg by 2016, equivalent to a label average of about 27.3 mpg. Final rules expected next month will raise the standards even further to an average laboratory rating of 54.5 mpg by 2025. In 2012, the increased availability of more fuel-efficient models to meet these standards coincided with high spring gas prices, creating a perfect storm of an ample fuel-efficient car supply in every segment just in time to meet surging consumer demand.
“Simply put, the fuel efficiency standards are working and in fact, are exceeding our expectations,” said Luke Tonachel, vehicles analyst at the Natural Resources Defense Council (NRDC). “These standards are doing exactly what they are supposed to do: delivering the fuel-efficient cars that consumers clearly want. We look forward to the continued improvements and more fuel-efficient choices that the 54.5 mpg standards will bring.”
Based on the year-to-date sales data from model year 2012 (October 2011 to June 2012) as tracked by the University of Michigan, the U.S. fleet fuel efficiency average is poised to exceed government regulators’ predictions of a fleet wide average of 23.4 mpg for model year 2012.
Editor’s Note: The following is an excerpt from a Wall Street Journal piece on the revitalization of the auto industry. To view the entire article click here.
Sergio Marchionne strode around the cavernous design studio at Chrysler Group LLC last month inspecting a soon-to-launch new compact car, the Dodge Dart, and offered a bold idea. “We are going to try to grab some share” in the small-car segment, he said, puffing on a Marlboro.
Not so long ago, a Chrysler chief saying that might have been laughed out of the room. For a generation, the company and its two Detroit rivals, Ford Motor Co. and General Motors Co., all but conceded leadership of the passenger car business to Japanese rivals. While making pickups and sport-utility vehicles that Americans liked, Detroit produced cars that were often uninspiring and sometimes years behind on technology and quality.
Meanwhile, Toyota Motor Corp. and Honda Motor Co. built huge followings for their family-size cars and compacts—Camry, Accord, Corolla and Civic—and used that base to sustain a 30-year expansion in market share, pushing Detroit to the brink of collapse.
But today, there are renewed signs that Motown is back. The latest evidence of its revival will be on full display this week at the North American International Auto Show in Detroit.
After gut-wrenching restructurings—GM and Chrysler in government-backed bankruptcies, and Ford on its own—the Detroit Three are all making money. Instead of having to spend a lot on labor costs and retiree benefits, they are pouring money into engineering and designing cars that can go head to head with the best in the industry.
Armed with good-looking, fuel-efficient and technology-packed cars, Detroit’s revived auto makers insist they have a historic opportunity to strike back at their Japanese rivals and regain the upper hand in the North American auto industry.
Investors, however, aren’t fully convinced this time is different. Ford shares, which fell below $2 each in the dark days of 2009, closed Friday at $11.71, below the about $18.50 price it traded a year ago. GM shares, now trading at about $22.92, remain below its November 2010 $33 initial public offering price.
Worries that another economic slowdown could cut into global sales and concern that last year’s profits mostly were generated by SUVs and pickups continue to spook investors. SUVs and pickups are more profitable but an overreliance helped sink their business four years ago as fuel prices skyrocketed.
But within the auto industry, a new optimism is taking hold. “The resurgence of Detroit is real,” said Mike Jackson, chief executive of AutoNation Inc., a large dealership chain closely aligned with both Detroit and foreign auto makers. “The foundation is exciting new cars and the viable, sustainable business models these companies have put in place. It’s absolutely revolutionary for this town.”
The following is a perspective from Booz & Co., a leading global consulting firm, offering the company’s latest thinking on key insights, trends and the forecast for the year ahead in the auto industry, In some cases, the observations parallel the RV industry.
For U.S. automakers and suppliers, the past year can best be described as 12 months of mixed results, leaving unanswered questions about the future direction of the industry and what is required for manufacturers and suppliers to thrive.
In 2011, U.S. light car and truck sales will exceed 12.5 million, a nice bump from 11.6 million in 2010 and 10.4 million in 2009. And though the most optimistic analysts forecast that U.S. vehicle sales will rise to more than 14 million in 2012, that’s a far cry from 17.3 million at the turn of the millennium. Last year’s U.S. sales figures might have been higher if not for the tsunami and earthquake in Japan and flooding in Thailand, which forced Toyota, Honda, and, to a lesser extent, Nissan to curtail production in virtually all of their assembly plants around the world. Auto sales growth is far more rapid in emerging nations such as China and India, with average annual sales gains since 2001 of 23% and 15% respectively.
All of this should be good news for U.S. automakers, which have restructured their operations to be profitable at lower volumes in the U.S. General Motors, Ford, and Chrysler gained market share at the expense of the Japanese manufacturers, and the Detroit Three have now posted several quarters of consistently strong operating performance. Whether these improved earnings are short-lived will depend on a number of unknowns:
• As their output returns to normal, will Japanese companies reclaim their market share?
• Will the Detroit Three maintain their focus on new vehicle development and launches and continue to practice pricing discipline, which favors maximizing profits over volume or marketshare growth?
• How will rapid introductions to the U.S. market of highly competitive new models from automakers around the globe, combined with slow growth, play out? How will automakers differentiate their vehicles and earn the pricing and volume they need? What will they do to ensure that each program delivers an attractive return on invested capital?
• How will automakers serving the U.S. market protect themselves against the risk of disruption (such as the supply chain disruptions we have seen in Japan and Thailand) and will they do it at an affordable cost?
Automakers will also face technological challenges. For example, advances in braking, parking assistance, propulsion, sensors, and other critical areas are bringing us closer and closer to the era of self-driving automobiles; indeed, Google has already logged well over 100,000 miles on its unmanned robotic vehicle. In urban areas, in particular, these innovations could improve traffic flow, provide revenues (through “smart tags” and traffic congestion pricing), and reduce accidents through vehicle-to-vehicle communication and coordination.
Meanwhile, vehicle-based mobile communications technology continues to produce breakthroughs in voice-activated telephony, GPS, information, and entertainment. For example, GM customers can now use the automaker’s OnStar (driver communication) and RelayRides (vehicle location tracking) systems to rent their personal vehicles to others and charge fees based on usage. Both original equipment manufacturers (OEMs) and suppliers will have to anticipate which new technologies and add-on services will justify the cost of innovation. Clearly, anything that consumers are willing to pay for, that increases safety or functionality, or that reduces cost has the potential to be successful. At the same time, OEMs must be careful to integrate new technology into vehicles effectively and only when it is well perfected, or risk adding features that are annoying or, worse yet, prone to breaking down, which could negatively affect consumer perceptions about the quality of the automaker’s products.
A return to competition based on innovation is a refreshing change from the dismal situation the industry faced just two years ago. And while the Detroit Three focus on producing more exciting and attractive vehicles, they can take comfort in having addressed a perennially problematic issue through a new and mutually beneficial four-year labor agreement with the United Auto Workers. By being able to pay newly hired workers at rates comparable to those paid by Asian transplants in the U.S., GM, Ford, and Chrysler have taken another important step in narrowing the gap with their rivals on manufacturing costs.
Suppliers are also relatively well positioned after several difficult years. Many suppliers were very profitable in 2011; they have emerged from the recession (and, in many cases, Chapter 11) with restructured balance sheets and lowered breakeven points. Moreover, supplier relationships with GM, Ford, and Chrysler have improved, according to the annual Planning Perspectives OEM-Supplier Working Relations Index. But there is more work to do: Chrysler and GM still score in the “very poor-poor” range.
There are some dark clouds for suppliers, though. Raw material prices, already elevated, may continue to rise, and many suppliers are struggling to find the capital to ramp up production to meet increasing demand. Moreover, most suppliers must continue to deal with what has become an endemic issue: a talent shortage, as top-flight engineers willing to work in the auto industry are increasingly hard to find.
To view the entire report click here.
A new report co-authored by researchers at Indiana University’s Kelley School of Business, provides a revealing look at the transformation of the auto industry in Indiana, Michigan and Ohio as it emerges from the Great Recession.
It portrays how the industry’s restructuring activities — such as applying new technologies and production efficiencies, reducing costs and modifying product lines — already were underway and leading to an extended period of downsizing when the recession arrived, according to a news release.
“This report is a reality check, accepting that the regional economy is at a fundamentally different place and cannot return from where it came. However, as the auto sector works toward its revival, there are workforce issues to be addressed, particularly in the context of the growing evolution and demands of a green economy,” says the executive summary of the report, “Driving Change: Greening the Automotive Workforce.”
The report and an accompanying conference are the capstone of an 18-month U.S. Department of Labor study led by the state Labor Market Information Offices in Indiana (the Indiana Department of Workforce Development), Michigan and Ohio in collaboration with the Indiana Business Research Center (IBRC), the Center for Automotive Research (CAR) and Weatherhead School of Management at Case Western Reserve University.
The research results were unveiled today (May 4) at the conference, which was held at the Ford Conference and Event Center in Dearborn, Mich.
“A key finding of this research is that the automotive jobs growing in demand require more complex skills and knowledge, with stronger credentials, than in the past,” said IBRC director Jerry Conover. “Our study illuminates pathways to lead today’s workers to those jobs, as well as to in-demand jobs in other industries.”
According to the report, automakers face a variety of challenges imposed by global competition, government mandates and consumer demands. Finding the best balance of materials and technologies to meet these sometimes-conflicting demands requires agility and new approaches to design and manufacturing.
To help meet these challenges, autoworkers will increasingly need to emphasize integrative systems approaches, critical thinking, problem-solving and communication skills, together with a commitment to lifelong learning at all levels of the workforce.
Conover noted that the size of the work force at auto industry employers in the three-state region was cut in half over the past decade. As a result, the report also highlighted that many displaced workers will need help to find suitable alternative jobs. It offers valuable guidance to those helping displaced workers prepare for new career opportunities.
The research offers several practical responses for the industry, including:
- The need for ongoing access to capital for the supplier network is critical to the stabilization of this sector.
- Emerging green and cross-functional systems approaches to design, manufacturing, equipment maintenance and building construction will demand corresponding changes in the training of workers from the design center to the shop floor.
- Strategic training for managers that emphasizes long-term planning, worker training benefits and the need to integrate complex investments could improve acceptance of the associated investment costs.
- Current differences among definitions of green jobs and inconsistent use of occupational coding systems frustrate and complicate research efforts aimed at identifying and quantifying these jobs and identifying training opportunities.
- Many of the workers displaced from the auto sector who will need to transition to alternate occupations are starting with limited education (high school or less). These workers will be especially challenged in finding acceptable replacements for their old jobs and will need support throughout that process.
“New opportunities are arising in other sectors of the green economy. Investment drives innovation and ultimately results in more jobs. While the automotive industry may never return to previous employment levels, there is a future for substantial automotive and green employment in the tri-state region” the report says. “Preparing a skilled green workforce for automotive and related green industries should remain a priority in this region for years to come.
“The tri-state region appears able to attract and retain research and design, engineering and systems integration jobs going forward based on its extensive talent pools and knowledge base, but faces stiffer competition from Asian players for other niches such as electronics manufacturing where the region’s infrastructure and knowledge are not as advanced,” it cautioned.
More information about project is available online at www.drivingworkforcechange.org.
After an agonizingly slow start, 2010 finished with a fourth-quarter rush that persuaded some automakers to raise their 2011 sales forecasts, Automotive News reported this week.
The December sales rate was the best of the year, pushing the 2010 U.S. light-vehicle total to 11.6 million units, up 11% from a 27-year low in 2009.
Last month’s seasonally adjusted sales rate was 12.6 million units — the third straight monthly rate above 12 million.
The fourth-quarter flourish capped a turning-point kind of year. Sales came off the floor; the Japanese lost market share for the first time since 1996; and the traditional Detroit 3 brands added share for the first time since 1993.
But all automakers like what they see ahead. Last week, both Ford Motor Co. and General Motors Co. raised the upper range of their 2011 light-vehicle sales forecasts by a half million units, to 13.3 million.
Ford sales boss Ken Czubay said he expects both retail and fleet sales to grow in 2011 because of the redesigned Focus and Explorer.
“We are starting to see the first fruits of our efforts to build products that appeal to a wide range of customers,” he said. “This signals potential growth as we go into 2011.”
Don Johnson, GM’s vice president of U.S. sales, said the depressed housing market and lingering unemployment will hamper auto sales growth in 2011. But he predicted those factors will ease later in the year.
“GM is encouraged by recent improvements in consumer spending and confidence,” Johnson said. “We expect the extension of tax cuts and unemployment benefits will help propel consumer spending.”
IHS Automotive forecasts that North American light-vehicle production will increase 15% to 3.3 million units in the first quarter.
The year’s broad trends:
- Japanese brands lost a combined 1.7 points of U.S. market share. Most of it went to the Detroit 3 and Hyundai-Kia.
- Vehicles built in North America accounted for 76.4 percent of U.S. sales, up from 73.9 percent in 2009. Detroit’s rebound contributed, but Asians also shifted manufacturing to North America to cope with a weak dollar and rising costs at home.
- Luxury brands generally outperformed the industry average, led by gains of more than 20 percent at Cadillac, Infiniti, Acura and Audi.
Among the winners and losers:
- Four major groups — Ford, Nissan, Hyundai-Kia and Chrysler — scored double-digit sales increases and boosted their market share by a combined 2.4 points.
- Subaru and Audi had record sales, with Subaru topping a quarter-million units and Audi surpassing 100,000.
- Each of GM’s four surviving brands posted a double-digit gain: Chevrolet, 17%; GMC, 32%; Cadillac, 35%; and Buick, 52%. Overall, that’s a 22% increase for those four brands over 2009.
- Hyundai-Kia, up 22%, solidified its position with almost 900,000 sales.
- At Ford Motor, the strength was all from the Ford brand: A 22% jump pushed it past Toyota as the No. 1 U.S. brand. Lincoln lost market share, and Mercury’s 1% rise was driven by closeout sales.
- Toyota Motor Sales lost 0.4% in sales and 1.8 points of market share.
- Suzuki sales plummeted 38%, Smart fell 59%, and subbrand Scion slipped 21%to deepen Toyota’s losses.
- General Motors — including its discontinued brands — and American Honda each boosted sales 7%. Still, they lost market share by underperforming the industry.
Although 2010’s growth of 1.2 million units from 2009 began the industry’s climb from a two-year sales crash, automakers are acutely aware of how far they have to go.
Some perspective: Excluding 2009, last year’s sales were the lowest since 1982. And 2010’s volume was only two-thirds the 17.4 million sales in the peak year of 2000. The three best-selling automakers in the U.S. market are among the worst of the wounded.
Except for 2009, GM’s 2.2 million U.S. volume was its lowest since 1952 and less than a third of its 1978 peak year of 6.9 million. Ford’s 2009 and 2010 sales were its lowest since 1961. Last year was Toyota’s third straight decline and its worst U.S. total since 2002.
“We’re coming off the most challenging time in our 53-year history,” said Don Esmond, Toyota vice president of U.S. operations. “We’ve never headed into a new year with as much excitement and anticipation as we are in 2011.”
Declaring Toyota “in full recovery mode,” Esmond said it will introduce 10 new or refreshed models in 2011 and will try to boost fleet sales, which fell to 8.5% of the mix last year, from a typical 10%.
Ellen Hughes-Cromwick, Ford’s chief economist, said last week that recent economic indicators “are supporting ongoing improvements in consumer spending.”
Noting that auto sales usually improve several months before the U.S. economy does, she said the economy should improve in 2011.
Said Hughes-Cromwick: “The strength in auto sales last month is also a good leading indicator of the economy.”
Figure on a slow and steady recovery in U.S. auto sales next year — a rise of about 10%, according to the consensus of analysts surveyed by Automotive News. But one outlier predicts a much bigger jump in 2011 and offers some compelling data to back it up.
The consensus is for 2011 volume of 12.7 million sales, a 10% increase if this year ends at 11.5 million units. All but one of the seven analysts predicted a market of 12.5 million to 12.9 million.
But Morgan Stanley says consumer creditworthiness is improving so rapidly that lenders are about to loosen credit dramatically — and that will rocket the market to 14 million units in 2011.
“The catalyst is credit availability — a bigger impediment to auto sales than tight inventories or low demand,” says Ravi Shanker, Morgan Stanley’s lead analyst for North America.
Morgan Stanley is far from other forecasters on 2011, but less so after that. In 2012, Morgan Stanley sees 15 million sales. IHS Automotive predicts 14.8 million, which is close to the others.
“Everybody gets to the same place,” Shanker says. “We just get there faster.”
Analysts simply don’t agree on whether auto sales will recover as fast as they fell. So far sales have not snapped back, and most analysts say we won’t get a V-shaped recovery. But Shanker thinks otherwise, citing Morgan Stanley proprietary indices of credit quality and availability.
“Credit quality and availability always move in lockstep, with availability trailing quality by three months,” he says. “Now credit quality is rising quickly and is near historic highs. Even a small change in lender attitude means more auto loans and more affordable terms.”
But too many fundamental economic factors are weak for one improvement to break the logjam, counters senior analyst George Magliano of IHS Automotive. Jobs, housing and credit are all huge drags on auto sales.
“There will be no massive surge in the short term,” he says.
Magliano says there could even be a first-half dip before sales improve in the second half.
Jesse Toprak, vice president of industry trends for TrueCar.com, says this crisis is different from previous auto sales slumps and recoveries.
“This recovery has been slower than ones we have seen in other industries, and it will stay that way,” he says.
“The auto industry needs time to recover from a decade of overproducing and selling on the deal instead of the merits of the vehicle.”
Brightening a bit, Toprak says automakers have not reverted to overproducing and excessive incentives to grab market share because they have fresh memories of where they went too far.
Dan Montague, senior analyst at PricewaterhouseCoopers Automotive Institute, is the most pessimistic of those surveyed, forecasting a market of 12.5 million for 2011.
“We still have a good bit of downside risk, perhaps as low as 12 million,” he says. “I just don’t see an environment healthy enough to put the car buyer back in the game.”
Jeremy Anwyl, CEO of Edmunds.com, says uncertainty over jobs, housing and the economic stability of Europe and emerging markets keeps prospective buyers on edge.
“None of these factors have any certainty,” he says. “It’s a lot of wild cards.”
Even the lower incentives being offered by automakers hurts unit sales because they effectively raise prices, Anwyl says. And lower volume doesn’t generate positive headlines, he adds.
“If there’s good news, confidence feeds on itself,” Anwyl says. “That’s why recoveries tend to be very steep. I’m not sure it’ll happen that way this time.”
Even if the analysts do not agree on the pace of the recovery, all expect higher sales next year.
TrueCar’s Toprak says three traditional factors — jobs, housing and consumer confidence — have been strongly linked to sales the past three years. But since January 2007, he says, the strongest predictor is the Dow Jones Industrial Average.
And the Dow has risen sharply since mid-September.
“It’s what you hear,” Toprak says. “It sets the public mood for consumption. If the Dow is up, it’s a green light for the consumer to buy.”
All major automakers but Toyota reported strong U.S. sales increases in November as the auto industry’s slow-motion recovery continued to gain traction, Associated Press reported.
Ford, General Motors, Chrysler, Nissan, Hyundai and Honda all reported double-digit increases, and only Toyota, which has been hurt by a string of safety recalls, had a sales drop. Overall, according to Autodata Corp., U.S. sales last month rose 17% from November 2009, a month marked by consumer paralysis due to high unemployment.
The November performance helped an industry that is trying to recover from last year’s historic lows as credit froze up and two major automakers slid through bankruptcy court. Sales started the year with promise, peaked in May as consumer confidence rose, fell off during the summer and now have started to rebound.
Industry analysts say the solid November sales numbers, combined with a strong October, show that consumers who have kept their jobs through the economic downturn are now feeling confident enough to spend money and replace older vehicles.
Bob Carter, Toyota’s top U.S. sales executive, said Toyota can tell things are shifting because buyers are opting for more highly equipped sport utility vehicles, which indicates they aren’t just buying because they need family transportation.
“At the beginning of the year, the vast majority of buyers were those who needed a car, versus wanted a car,” he said.
Those who spent money last month also bought crossovers like the Chevrolet Equinox and Hyundai Santa Fe. Midsize cars like the Ford Fusion and Hyundai Sonata also sold well.
The increased sales likely are due to a combination of rising confidence and delayed buying as people replace vehicles they have kept for longer than normal during a severe auto industry downturn, said Bruce Clark, senior vice president of Moody’s Investors Service.
“There is a degree of pent-up demand that’s being met gradually by people who have kept jobs and can go out and afford to do such things,” Clark said. The sales are not as robust as historic highs from the early 2000s, but they are still a good sign for the industry, Clark said.
Yingzi Su, GM’s senior economist, said the stable and increasing auto sales mean that consumers with jobs are starting to spend again, the start of an upward trend for automakers and a good sign for the broader economic recovery going into next year.
Once businesses see increased consumer spending, she said, they will be more willing to hire workers, a factor that has held back the economic recovery for months.
Incentives such as sweet lease deals and rebates also helped push up sales last month. Automakers raised incentive spending about 6% over October to an average of $2,712 per vehicle, said the auto website TrueCar.com.
Of the major automakers, Hyundai Motor Co. had the biggest increase, up 45% from the same month last year. Nissan Motor Co. sales were up 27%, followed by Honda Motor Co. at 2%1 and Ford Motor Co. with 20%. Chrysler had a 17% increase, while General Motors reported sales up 11% from November of last year.
Toyota sales dipped 3%, with the company blaming the drop on a 60% cut in sales to fleet buyers such as rental car companies. Carter said Toyota didn’t want to match competitors’ low prices on fleet vehicles. Toyota said sales to individual customers were up slightly but they didn’t increase as much as the industry average.
Toyota has been fighting a string of embarrassing safety problems. The automaker has recalled more than 10 million vehicles worldwide mostly for problems with sticky gas pedals or floor mats that can trap the accelerator pedal.
GM reported increased showroom traffic toward the end of the month, an encouraging sign after its initial public stock offering on Nov. 18. The U.S. government, which spent $49.5 billion bailing GM out of its financial troubles last year, cut its stake in the company from 61% to about 33% by selling stock in the IPO. GM has maintained that government ownership has hurt its image with consumers and its sales. GM shares rose 2% to $34.78 in trading Wednesday.
Two years after gasoline prices hit a record high of more than $4 a gallon, size matters again for many American drivers, CNBC reported.
New or used — pickup trucks, SUVs, crossovers, even minivans — Americans want to drive big.
“The further we get past the gas crisis, the less people remember it,” says Jessica Caldwell, senior analyst for Edmunds.com, which publishes a website to ducate automotive consumers, enthusiasts and insiders.
The renewed popularity of the light-truck segment comes as the global auto industry enters the second year of a modest and at times tentative recovery.
“The American consumer likes size and functionality,” says George Magliano, director of North American auto research, at IHS Automotive.
Though the current market has much it common with the pre-crisis one, there are differences.
For one, annual sales — after falling to under 9 million a year in 2008, are running around 11 million for 2010, a far cry from the 15 million to 17 million in the pre-crisis years.
Crossover SUVs look a lot like the SUV of the past but they’re built on a car base, not a light truck one. These vehicles, along with the new and improved F-150 light-truck line from Ford Motor are also slightly more fuel-efficient.
Sales of crossovers are up 24.2% this year through June. At the same time, however, midsize SUVs (with the traditional base) are up 22.8%, outpacing the gain of the midsize car category.
The small car category is up 14.2%, while the small SUV one is actually down 15%.
“When gasoline was above $4 s a gallon, people wouldn’t even buy a crossover,” says Magliano. “Demand for smaller cars goes away when fuel prices drop. Hybrids are even worse. Consumers don’t want to pay the premium.”
Now And Then
A look at sales data then and now clearly reflects such consumer behavior.
In February 2009, for example, sales of crossovers fell almost 33% month-over-month and slightly less year over year. During that same period, the Ford Escape — one of the hot SUVs now – posted monthly and yearly declines of 28.9% and 27.3% and 27.3%, respectively.
By contrasts, in May 2010 — one of the industry’s best months this year — Escape sales jumped 17.3%, while those of crossover SUVS rose 16.6%.
The crossover SUV segment — which Toyota launched with the RAV4 in 1995 — is now a large and competitive one
“Crossovers have become so mainstream,” says Caldwell. “I think people are being more realistic about how they use their SUVs. They’re more of a car substitute, not an off-road vehicle.”
In the first half of 2010, four models had unit sales of 50,000 or more; another four had sales between 35,000 and 45,000. The eight vehicles were made by seven different manufacturers.
The current sales pattern is much the same for pick-ups and to a lesser extent vans.
Ford’s F-150 truck is once again the top-selling vehicle in America. General Motors’ Silverado is close behind.
Light-duty trucks sales in June were up 20.1%over a year ago and are up 17.2% year-to-date. F-150 sales were up 29.5% and 33.8%, respectively; GM’s Silverado, 25.1% and 11.2%.
But back in June 2008, with prices closing on the $4 level, total light truck sales tumbled 37%. For all of 2008, F-Series sales plummeted 25%in 2008; Silverado’s 28%.
“That segment is absolutely solid. Talk about bang for your buck,” says Kelley Blue Book’s Juan Flores, who is among the many who applauds Ford’s 2009 redesign, which includes greater fuel efficiency.
Like many things, however, fuel efficiency and gas prices are in the eye of the buyer.
Ford bills the F-150 as 8% more fuel-efficient. In most models that’s a difference of a mile or two a gallon. At its best, the new vehicle mpg grid is 15 city, 21 highway.
“Just enough to justify it in a person’s mind,” says Hossack.
There’s no denying the average price for a gallon of gasoline is significantly lower than the crisis period high of $4.11 on July 17, 2008, but it is still historically high.
Over the past 12 months, the price has remained in a pretty narrow range ($2.65 -$2.85). Nevertheless, even at its current level ($2.71), it is well above the 2009 average ($2.37).
“It’s not so much what fuel prices are, but what they may become,“ says Hossack. “When gasoline was $4 a gallon, people feared $5. They feared $6. Now, prices have been holding at $2.75 a gallon, so people think, maybe gasoline goes to $3.25 or $3.50.”
History suggests that may be the case. In August 2008, even as the trend is in gas prices was decidedly lower, sales of light trucks continued to plummet. Gas prices fell 10% for the month; truck sales 24%.
Given the weak state of both the U.S. and global economies, and barring any major geopolitical event, it’s unlikely gasoline prices will move up much in the next couple years. If so, that will support recent sales trends.
Analysts say cash-strapped automakers will continue to give American consumers what they want. The so-called aspirational truck buyer may be gone for good, but a small-car nation is hardly around the bend, even now that cars once again represent 50-plus percent of the market,
“Washington will have to wake up and orchestrate it,” says Magliano. “It will have to either incentivize people to buy smaller or companies to sell smaller.”
Ford Motor Co. reported a 43% U.S. sales gain in February as it leaped over rival General Motors Co. in monthly sales, according to Automotive News.
Ford sold 142,006 light vehicles last month — 471 more than GM, which advanced 12%. It was Ford’s fifth straight monthly increase in its home market.
The last time Ford topped GM in monthly sales appears to have been July 1998, when GM was crippled by a strike at its Delphi parts unit. GM has been No. 1 annually since 1931.
On an industrywide basis, analysts expect U.S. auto sales to be near a seasonally adjusted annual rate of about 10.4 million, down from January but higher than year-earlier levels when sales rates were near the bottom of the deepest downturn in almost three decades.
Heavy snow froze dealership traffic in many mid-Atlantic states for several days in February, further depressing sales in “what is proving to be a very fragile recovery,” said Jack Nerad, an analyst for Kelley Blue Book’s kbb.com.
The month’s big question was how much sales at Toyota Motor Corp. were affected by its recalls. Grappling with its biggest safety crisis in history, Toyota is expected to be one of only two major automakers — along with Chrysler Group — to report sales declines for the month.
The industry tracking firm Edmunds.com sees Toyota’s market share dropping to 12.6% in February, its lowest level since July 2005. The world’s biggest automaker accounted for 17% of U.S. sales for all of 2009.
Far from 2008
While GM’s overall February sales rose, demand is still about half of pre-recession levels. GM sold 141,535 light vehicles last month, vs. 268,737 in February 2008.
A combined 33% advance at Buick, Cadillac, Chevrolet and GMC more than made up for an 86% drop at the automaker’s four canceled brands: Hummer, Pontiac, Saab and Saturn. GM released its results four hours earlier than usual today.
Ford’s February climb came on top of a 25% January increase and a 33% rise in December.
Subaru, the only brand to lift U.S. sales in each of the past two years, soared 38% in February.
“The pace of the recovery has hit a speed bump,” Jeff Schuster, forecasting director at J.D.Power and Associates, said before today’s results were released.
“This hiccup appears to be the result of consumers waiting out the Toyota recalls and winter storms impacting showroom traffic.”
U.S. auto sales are expected to rise more than 10% to a seasonally adjusted annualized rate of about 10.5 million vehicles in February, according to analysts surveyed by Reuters. A Bloomberg News poll of eight analysts projected a SAAR of 10.3 million.
That would mark an improvement from 9.05 million a year earlier but a decline from 10.5 million in January.
Analysts expect Toyota’s February sales to drop at least 10% from the previous February.
Ford, Nissan Motor Co. and Hyundai Motor Co. were projected to be the big winners, posting sales gains of 20-40% in February, according to Edmunds.com. The analysts surveyed by Bloomberg had pegged Ford’s gain at 33%.
But dealers and analysts said rivals have had limited success in poaching customers from Toyota, with most customers delaying any decision to abandon the automaker.
“There is a wait-and-see approach by Toyota loyalists,” said Chris Hopson, an analyst with IHS Global Insight. “They want to see how this plays out before making a buying decision.”
Toyota shut down sales of its most popular vehicles in the last week of January, including Camrys and Corollas, while dealers fixed sticky accelerator pedals in the recalled vehicles.
If there was one thing conspicuously absent in the launches and unveilings at this year’s North American International Auto Show, it was trucks.
For many automakers, the big news this year was small cars. Ford Motor Co., General Motors Co. and Chrysler Group LLC offered up new compacts and subcompacts, as did many of the foreign automakers, according to The Detroit News.
A number of factors are driving this push toward smaller vehicles: changing demographics, a weak economy, fear of oil price volatility and new government regulations. But with so many placing big bets on small cars, some analysts wonder whether automakers are chasing the market or getting ahead of it.
“The compact car segment will continue to grow,” said Erich Merkle of Autoconomy.com in Grand Rapids. “But the rate of growth won’t be enough to accommodate all the new competitors and products.”
Ford CEO Alan Mulally said Ford’s entries into the domestic small car market are aimed at balancing a lineup that for too long was dominated by big pickups and sport utility vehicles.
“Some people perceive that we are making a big bet on small vehicles. I’d say we are reducing the risk to Ford Motor Co. by having a complete product line,” he said. “We’re the ones that chose to focus on big SUVs and trucks because we didn’t have a competitive cost structure … I want to give the consumer a fabulous choice in every vehicle size.”
That said, Ford’s market research shows that U.S. consumers are increasingly interested in smaller, more fuel-efficient vehicles. Mulally said most Americans know that fuel prices will rise again and want to insulate themselves from that risk as much as possible.
But demographics also are changing. The two biggest customer groups today are Baby Boomers, many of whom are downsizing, and young people who do not yet need the hauling capacity of a larger vehicle. Mulally said both of these groups are willing to consider smaller models — provided they can get the same comfort, features and safety they have come to expect from larger vehicles.
Other automakers agree that fuel economy has become an important purchase consideration.
Tom Stephens, GM’s vice chairman of global product operations, said the world’s oil production cannot keep pace with increasing demand, particularly as the United States and other nations emerge from the recent recession. That will prompt an inevitable rise in gasoline prices, fueling increased demand for more efficient models.
“In the future, consumers will have a need for smaller vehicles,” Stephens said, adding that GM’s new compacts and subcompacts are aimed at meeting this growing need.
Sergio Marchionne, CEO of Chrysler and its new Italian parent company, Fiat SpA, agreed that there is an opportunity to sell more small cars in the United States.
But he said Americans will always want bigger cars than their European counterparts.
“You shouldn’t equate gas prices with size of car. One has to do with the efficiency of the systems that drive these vehicles and that’s one thing that needs to be addressed as a separate issue in terms of the efficiency of the powertrains,” Marchionne said. “I know that in Europe 50% of the market is C-segment and below, but that’s Europe. We’re not going to turn Americans into Europeans. It just won’t work. Distances travelled are totally different. Let’s not confuse them.”
David Cole, chairman of the Center for Automotive Research in Ann Arbor, said it is important not to read too much into the prevalence of smaller cars at this year’s show.
“There obviously is a lot of attention on fuel economy right now, because that is what everybody is talking about,” he said referring to the tougher fuel efficiency standards enacted by the federal government.
“Next year, I don’t think it will be about small cars. It may be about midsized cars or even large cars. Because the intent of the law is not to force people into small cars, but to have all cars become more fuel efficient.”
Editor’s Note: Thom Cannell and Steve Purdy from the Detroit Bureau of TheAutoChannel.com provided this insight into the future of the auto industry. The story was titled “Can the US Produce Vehicles to Compete in the World Market and Satisfy Home Markets? and subtitled “The Dichotomy of Political Courage VS Personal Choice.”
This week the think tank and business intelligence company CSM brought its annual predictions to the Automotive Press Association in Detroit. There was nothing as earthshaking as last year’s prediction that Chrysler was doomed – unless you think that adding $31,900 to the cost of your favorite vehicle is news. That is the cost of non-compliance with EPA mandates in the future; and that cost forms the basis for a huge dichotomy.
Craig Cather, president and CEO of CSM, introduced his staff’s projections 5 to 15 years out. He insisted that after this past year of unprecedented carnage in the industry “we’ve hit bottom and positive signs are at hand.”
But he worries that the United States has no coherent energy policy. It does, however, have political energy focused in different directions that are perceived by some, but not all, as desirable. One of those is the push for smaller vehicles which could save the US car industry. However that means convincing Americans that buying small cars, vehicles smaller than the Ford Focus, Chevrolet Malibu, equal and smaller than Ford Fiesta and Chevrolet Cruze is what they must do for economic as well as patriotic reasons. Nifty, necessary, noteworthy and highly unlikely if fuel remains inexpensive. Would you rather have a Fiesta or a Flex, a Cruze or an Impala, a Dodge/Fiat 500 or a Chrysler 300? Given low fuel price that particular handwriting is in the sky, not on some back wall in Foggy Bottom. The EPA wants vehicles the size of A and B cars like Fiat 500, Cruze, Fiesta, and smaller to be the norm.
Our CSM experts also insist that for U.S. auto makers to compete internationally we’ll have to be making vehicles that fit into mandates and preferences in other world markets – which, they insist, we are not doing now. They contend that our mandates ought to be reflecting those of the other world markets.
CSM’s VP of global powertrain forecasts, Eric Fedewa, speculated about ways Detroit automakers may become profitable over the next 40 years. His projections attempt to anticipate trends all the way out to 2050, a monumental task to be sure.
Fedewa said we must acknowledge the role of global warming and world leaders’ ambitions of reducing CO2 levels by 80% by 2050. Transportation (including vehicles, mass transit, air travel, etc.) accounts for about 25% of CO2 production. That makes for a huge challenge for the industry. “But it’s not about icebergs,” he insists, “its about economics. And, pollution is a drag on economics”
Will governments substantially subsidize the radical changes that will come in our transportation inventory and infrastructure? And, will the US government subsidize the domestic industry to help them compete in other parts of the world where more strict requirements might be in place?
It will be tough, and perhaps impossible, to motivate the great mass of customers to vote with their increasingly hard-earned dollars for a politically mandated vehicle mix. People always want smaller cars and more fuel efficient cars, particularly in times of high fuel prices, until told that they are the ones who have to buy those small cars and pay for the technology. Then they purchase what makes the most sense for them.
What about electric cars?
Yes they are coming. CMS predicts that 45% of nameplates will have electric vehicles – in some form – by 2020. This includes milder hybrids and other technologies like the cost-effective Stop-Start which stops engines when standing and instantly restarts; Prius, Ford Fusion, Milan, and Escape already have this feature as does Honda Insight. Many other incremental advances will enhance electric cars, hybrids and conventional automobile powertrains.
What about other mandates?
Will government decide that you can only have the number of kids you can fit in your compact car? Will you have to have a business license to have a full-frame vehicle with reasonable towing capacity? Time will tell. What about pickups and large SUVs for families? As explained by CMS, those business-oriented vehicles will remain available but at a price that will, in our opinion, have small businessmen, those with recreational vehicles to tow, horsemen, farmers, and families with more than seven members literally breaking down doors to political will. Come on, an extra $31,900 for your necessary-for-business F-150/Ram/Silverado?
Government strategies will include continued demonization of CO2, continuing to allow the California Air Resources Board (CARB) to set emissions policy, substantial fines (perhaps as much that $30,000/vehicle) for noncompliance with mpg targets.
Some pols pontificate that Japan, Korea, the EU do not have open markets. Some of that is accurate. However, what really kills car sales is the size and thirst of our typical vehicle. While Rangers and Colorados are world-wide business vehicles there are no F-150s or Rams or Silverados anywhere else. Even our mid-sized and full-sized vehicles are luxury-class size in the rest of the world. More damning is carbon emissions and most of the world rates vehicles in grams of CO2 per kilometer. This is an accurate method of expressing both fuel economy and emissions. The current US fleet vehicle produces 105 g/km more than a comparable European vehicle making them unsellable overseas, according to CSM. In 2015 the company says, the gap will shrink to 42 g/km which is better but not enough. By 2030 the difference is expected to be 20 g/km or less, which is an acceptable difference.
All of this omits some harsh realities that CSM also disclosed. What happens when GM, Fiat/Chrysler, and Ford make small cars available and they don’t sell as planned? Expect those cars to have high levels of luxury-style content and probably large customer incentives — good for the customer and terrible for the companies.
In other bad news, the payback on your investment in new technology whether Direct Injection, Diesel, Hybrids, or pure Electric is very slow. The best ROI (return on investment) remains the spark-ignition engine with Direct Injection and turbocharging which adds about $1000 cost per car and a 4-8-year payback at current fuel price of $2.50 per gallon. Contrast that with an extended range or pure electric car and a payback that, at $2 per gallon for fuel, takes 10-27 years depending on how the technology is executed.
Even at $4 per gallon it would take 4-10 years to recoup the extra expense. Thus government will absolutely have to manipulate demand, absent a fuel shortage or huge taxes. Seen anyone in Washington seriously sponsoring a bill proposing additional gas tax? Are you holding your breath?
What is most needed, and also least likely, is a pure and defined governmental strategy for sustainability. Business needs defined and stable rules to plan and the auto industry with its 3-10 year cycles even more so. Car companies need stability in order to build and validate appropriate technology in volumes. Of course a sustained spike in fuel price caused by taxes or external factors could make political courage and action moot.
The G8 (and we’re not talking about the Australian Pontiac here), Cap and Trade scheme is expected to generate an ongoing 428 billion dollar per year price tag and 4.2 trillion in expenditures by 2020.
Fuel Cells, still at least 20 years away, may be a game-changer. Japan and others are using home-based fuel cells to produce home heating and electricity and will utilize these years of experience to implement automotive fuel cells. So many unpredictable factors will certainly effect our vehicular future.
During Q&A one of our particularly wise and astute colleagues asked about the risk of a “consumer revolt” as the government mandates result in the production of vehicles we may not want. Perhaps the U.S. auto scene will begin to look like Cuba with just old vehicles populating the highways because no one will want to buy the government mandated ones. As our friend and colleague, Gary Witzenburg, is fond of saying, government can mandate what kind of cars the manufacturers build, but they can’t force consumers to buy those vehicles. At least not yet.
Cummins Inc. is recalling 400 laid-off workers as it resumes production at a Columbus, Ind., factory, but nearly 300 people lost their jobs when an auto parts company idled a plant in nearby Shelbyville.
Cummins is preparing to resume production of the Dodge Ram engine at its Columbus MidRange Engine Plant with one shift beginning July 13, according to the Associated Press. The company shut down the plant and laid off 720 employees in May after Chrysler stopped vehicle production during its bankruptcy proceedings.
Cummins spokesman Mark Land said the plant would produce engines for the 2009 model Ram through mid-August, but that it would be idled again until Chrysler starts building the truck’s 2010 model. He said workers were expected to be called back again in October.
Land said Cummins has “solid commitments” from Chrysler for the 2010 Dodge Ram.
“We were confident,” Land said of continuing business with Chrysler. “But it’s nice to see that it’s really happening.”
Developments were less encouraging at the Meridian Automotive Systems factory in Shelbyville, where the company told city officials Thursday (July 2) that it was closing the plant for an indefinite period.
The announcement came less than a month after Meridian announced it planned to lay off 198 workers from the plant in stages over the summer.
The Allen Park, Mich.-based company said then that the layoffs were necessary because it had lost a major customer, which it did not identify. Meridian has made various parts for several automotive companies, including General Motors.
Shelbyville Mayor Scott Furgeson said the new announcement superseded Meridian’s previous schedule of job cuts.
“I don’t know Meridian’s position as a company, so I don’t know their long-term plan with this facility,” Ferguson said. “So hopefully they will continue to keep the plant in their long-term plans and will someday reopen it.”
Auto industry layoffs across the state helped push Indiana’s unemployment rate to 10.6% in May – double from the 5.3% of May 2008 and the state’s highest jobless rate since 1983.