Big and pricey just aren’t moving
In a down market, cheap and small sells.
That’s the message from automakers, who reported Monday that they sold 6.3% fewer cars in February than they did a year earlier as the industry endured a barrage of woeful economic news, including high gas prices, declining home construction and rising inflation.
As expected, trucks and SUVs led the race to the bottom, but those losses were partly offset by strong sales in the small-sedan segment, which as a whole was up 5% for the month.
U.S. automakers were hit the hardest. Chrysler, General Motors Corp. and Ford Motor Co. reported sales decreases of 14%, 12.8% and 6.4% respectively. Toyota Motor Corp. sales also slipped, by 2.8%, according to Autodata Corp. Among the large-volume carmakers, only two brands showed gains, with Honda Motor Co. up 4.9% and Nissan Motor Co. up 1.2%.
“I was worried it was going to be an even worse month,” said Erich Merkle, auto analyst at IRM Inc. in Grand Rapids, Mich. He had predicted a total of 1.15 million car and light truck sales in the month; actual sales were 1.18 million. “ ‘Good’ is a very relative word these days.”
If February’s pace holds up, 2008 sales will barely reach 15.4 million vehicles, compared to 16.1 million in 2007 and 16.6 million in 2006. Most industry forecasts had pegged 2008 sales at between 15.6 million and 15.9 million cars and trucks.
In terms of what consumers were looking for, humongous was clearly not it in February. Light truck sales declined 10.6%, and SUVs were down 7.7%, with the struggling housing industry exacerbating weak conditions. Housing starts, a key indicator for truck sales because many are purchased by contractors, were down 27% in January (the latest figures available), from 12 months earlier, while housing permits fell by a third.
Meanwhile, the fuel-efficient small-car segment was hot. Sales of the diminutive Toyota Yaris were up 64%, while the equally dainty Honda Fit was up 62% and GM’s Cobalt was up 56%.
Notably, sales of the Toyota Prius and Honda Civic hybrid were down, a possible sign that consumers, facing rising inflation, declining purchasing power and gas prices well over $3 a gallon, were less willing to pay a premium for hybrids. Although both the Prius and Civic Hybrid get significantly better gas mileage than the Yaris or Fit (about 10 mpg more), they also are considerably pricier. The entry-level Yaris, for example, is $11,350 less than the most-affordable Prius -- a sum that would buy a bountiful supply of gasoline.
“This is a price-point issue,” said Jesse Toprak, industry analyst at Edmunds.com. “People may be going for the cheaper alternative.”
According to Toyota, Prius sales declined 15%. The drop was particularly steep because last February was one of the top months ever for the model. In early 2007, the company was offering incentives on financing and leasing the hybrid; this year there are no such deals. “Prius is still in demand,” said Toyota spokesman Xavier Dominicis. “Attribute some of this to a stellar last February.”
General Motors also showed difficulties in moving hybrids. The carmaker sold 196 of its new Chevy Tahoe and GMC Yukon hybrid trucks last month, compared to 13,948 of the non-hybrid versions. The non-hybrid Tahoe starts at $34,630, compared to $49,590 for its hybrid sibling, and the price differential is almost identical for the Yukon.
The automaker has added increasingly large incentives to move its bigger SUVs and light trucks, including up to five-year, zero-interest loans on some models.
GM and Ford trumpeted sales of so-called crossovers, SUV-styled vehicles built on car frames, which as a segment were up 1.4%. However, because many of those vehicles went to buyers who otherwise would have bought SUVs, the higher sales probably don’t indicate a strong new market area.
Instead, crossover sales seem to only partially counterbalance weakness among SUVs. Nevertheless, automakers regard crossovers as very important because they make more profit on them (and on SUVs) than on small cars.
Other trends were more difficult to pick out among the monthly numbers. With overall luxury sales down more than 9%, including a 5.5% slide at Lexus. BMW was down 6.7%, yet Mercedes-Benz pulled out its best-ever February results, posting a 7.2% increase to 18,589 cars sold. That was a head-scratching result for many watching the sales boards.
“Consumers are generally buying smaller cars, cheaper cars and more gas-efficient cars,” Toprak said. “But there are exceptions.”
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