Americans appear to have finally cast away their deep fear of subcompact and compact autos. Ford Motor Co. says the trend has been building slowly since 2004 as Baby Boomers downsize and their children start buying cars.
But it is picking up serious speed now as oil prices pierce a record US$112 a barrel, harkening back to the 1970s energy crisis when gas-sucking pigs like the V8-powered Chevrolet Caprice sat on dealer lots while buyers flocked to new four-cylinder vehicles made by Toyota Motor Corp. and others.
"Anybody that has to have a car is starting to move into a smaller size," George Magliano, director of automotive industry research for consultancy Global Insight, said on Thursday. "We’re seeing more of this move this year."
Carmakers in the U.S. sold 8% fewer vehicles in the first quarter compared with the same quarter last year.
However, they sold nearly 4% more small cars, Ford says, including everything from Honda’s Fit to Ford’s own Focus.
"The acceleration is probably as much due to a growing acceptance of the fact that gas prices will be high forever," said Ford sales analyst George Pipas. "It wasn’t until last year that the average price of unleaded gasoline stayed consistently around the $3 level."
This year, small car share of the overall market has grown by two percentage points over last year’s first quarter, to 17.8%, Ford says. Over the previous four years, it has grown by only one percentage point a year. When faced with a choice between a car with a 4-cylinder engine and the same car with a more powerful 6-cylinder, more buyers are picking the 4-cylinder versions, Ford says.
"[There] is a wholesale change in the types of products we’re selling," Jim Farley, Ford’s group vice-president for marketing and communications, said earlier this month. "We are building every Focus we can right now. And we didn’t anticipate that."
The shift in product mix has come at the expense of pickup trucks and truck-frame SUVs. A construction slowdown in the United States means contractors and other tradespeople are putting off pickup purchases. And traditional SUV buyers, realizing they don’t need 4X4 capability to go to the grocery store, are moving to other vehicles like crossovers.
For Canada’s auto assembly industry, the trend is potentially worrying. More than two-thirds of the vehicles built in Canada are larger, fuel-thirsty models, TD Bank warned in a report in February. Increased production of Honda’s Civic compact and new Toyota models may not be enough to offset any decline at Ford, General Motors Corp. or Chrysler LLC.
For the Detroit players, the big problem is figuring out how to replace the big profits they earned from trucks with much smaller profits from small cars.
One answer may lie in replacing size and power with comfort and function. Ford says that as people are moving down into smaller vehicles, they are spending more on interior equipment and extras. The average new Focus, for example, has a transaction price that’s $2,000 higher than one year ago, the company says.
"We tend to demand much in the way of comfort in a vehicle," Magliano said. "You guys don’t love your cars like we do down here." (Tire Review/Akron)
