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Questioning Sales

Automotive sales have been slowing in the U.S. for nearly a year.

Automotive sales have been slowing in the U.S. for nearly a year. Yet the extent of the downturn is still very much in doubt.

It is interesting and worthwhile to look at how this downturn has played out so far. The 2001 model year data (through May), correlates well with the start of the downturn last fall. The 5.5% drop in total light vehicle sales is an average: There are many losers, and a few winners. Early in the downturn, much was made about this being a Big Three sales drop, with Honda, Toyota and European luxury brands seeing growth. That is still true to an extent, but few have escaped entirely unscathed.

It has been a tough year for the Big Three on the passenger car side. The Chrysler Group was down over 20% through May, while Ford wasn’t much better at just over 17% down. And GM leads the pack with an 8% decrease—which happens to be better than the 9.3% decrease reported by the Toyota car division.

On the car side of the business, Toyota is having some difficulties. The Lexus IS300 and the LS430, both new, are the only cars that are showing any sign of growth in their car line-up. Sales for the company’s two volume cars—Camry and Corolla—are down, though the new Camry should change things. Interestingly, the Toyota truck division is carrying the company. With two new products (Highlander and Sequoia) and one redesigned product, Toyota trucks appear to be the sales success story of the year.

Honda was doing better through the first eight months of the model year (up nearly 3%), but it, too, was showing some signs of weakness. While the Accord continues to go strong, the new Civic has had some trouble keeping pace with the previous model. The Acura car division, in a market that has remained hot for luxury models, was down over 4%. In contrast to the performance of Toyota, the Honda ‘trucks’ (CRV, Odyssey, and Passport) have been down this year, while the Acura-branded MDX has boosted the company’s overall truck volume by almost 6%.

Many of the consumer forces that drove the Big Three profit machine of the mid- and late-90s may be changing.

Certainly it was little surprise that the new Explorer was down from previous model year figures. Given the previous version’s tire problems, and the excruciatingly slow launch, sales were bound to be down. Yet what is somewhat surprising is the speed at which Ford placed incentives on the hood of a high-profile vehicle.

GM has been a bit more restrained with the incentives on its midsize SUVs (Bravada, Trailblazer and Envoy). Yet it has had a slow launch to limit volume, doesn’t have the capacity (or history of sales leadership) that Ford does with the Explorer, and they were launched into an environment that is vastly different from just a year ago. They have competition not only from each other, but also from a multitude of highly versatile, more fuel-efficient cross utility vehicles (CUVs). Add to this an increased awareness by the press and some consumers of the safety trade-offs of truck-based SUVs, and the future is much less clear.

The CUVs—part car, part truck and yes, even part minivan are likely to continue to make inroads over the next several years. The question is: Will this growth come from SUVs or cars? So far, the car segment appears to be holding up slightly better than the SUV segment in this context.

It appears that the only way to make it in 2001 is to have new, uniquely positioned product, or a whole lot of cash on the hood. And that leads to more questions: Like how long can the manufacturers continue to support the incentives, and concomitantly, by offering big rebates, are they pulling sales ahead and merely exacerbating the crash when it comes? Finally, which of the emerging segments will be the goldmine of the future, and at the cost of which segments?

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