New Car Sales: Higher Gas Prices Didn’t Matter…Until Now

Mainstream news outlets were quick to credit the popularity of compacts in last week’s March sales reports to rising gas prices. I’m not so sure about that. Except in California and a couple of other states, gas prices didn’t begin to approach $4 per gallon until after the April 1 numbers were released.

Yes, Chevy made a lot of noise about selling 18,018 Cruzes last month, and more than 50,000 for the first quarter, most of them to retail customers. Note also that Ford sold 12,482 Explorers in March, of which 10,000 were the new model and none with the EcoBoost turbo four. The Explorer is only available with the 3.5-liter V-6 at launch.

What’s happening? It’s a combination of good old American planned obsolescence – the same attitude that has millions of Apple iPad 1 owners ready to toss them away for iPad 2s – and advertising.

The 2008-10 recession and the disappearance of the good old days of 16-million+ annual sales has weeded out all but the most serious new car buyers. This consumer is either a serial new car buyer, perhaps bouncing from three-year lease to three-year lease, or he/she just can’t stand to drive your five-year-old+ clunker anymore. Perhaps these buyers simply must have Sync or keyless go, but they’re probably not enthusiasts, otherwise they wouldn’t be buying Cruzes and Explorers. Any fuel efficiency improvement can be impressive.

They pay attention to advertising. As 2953 Analytics’ Jim Hall likes to point out, there’s so much competition for new car buyers that automakers need to step up advertising in order to stand out. How would you explain Nissan’s success last month with its aged Altima, which had a significant TV ad campaign last month (it must have, for me to notice) and beat the equally aged Toyota Camry and its diminishing reputation?

Ford marketing chief Jim Farley explained at the Chicago auto show that he launched the 2011 Explorer on social websites, six month ahead of time, because he thought it wouldn’t kill off sales of the old, body-on-frame Explorer. What he didn’t say is the old Explorer was dead, already, anyway; just 60k last year, down from nearly half a million in its heyday. It won’t take a major hit to beat the ’10 Explorer.

Even with $4 gas, economy is relative. Suburban families can get more or less the same space and utility as in the old, 13/19 mpg Explorer (4WD, V-6), but with fresh new styling and more toys inside, and 17/23 mpg (AWD, V-6).

The new Explorer buyers are mostly upper-middle income suburban families. As I postulated with my April 1 monthly sales blog, I think stagnant incomes had as much to do with the success of cars like the Chevy Cruze as fuel prices. If your income hasn’t significantly risen, you won’t be ready for midsize cars that cost more than $20,000, so a near-midsize car with a $19,000 average transaction price seems a pretty good deal.

If gas prices keep rising, the May 1 report will be much different. A few more post-mortem observations from last month’s numbers:

Bring out your dead.

Counterpoint to the success of the Explorer is the failure of the Flex. Ford sold just 2,468 in March, and year-to-date sales totals 6,823, off 21.8 percent from the first quarter of ’10. Most months, Chevy Traverse outsold Ford Flex by more than 2:1. Last month, Ford turned the tables with the new Explorer, beating the Traverse by roughly 2,000 units (counting only the ’11 model Fords). I wouldn’t be surprised to see the Flex fade away by the end of the year.

About that Explorer …

Yes, Ford sold more than 10,000 of the new model, the one we placed last in our family crossover comparison. Probably none of those buyers saw our report before heading to dealerships, though that’s not to say sales will drop off this month. After all, we really like the new Mustang, and it’s still struggling to catch Camaro sales.

Fusion is a powerhouse.

I’ve repeated many times how Alan Mulally mistook the Five Hundred as the Taurus replacement. Last month, with 27,566 sold, the Fusion proved itself a midsize sedan capable of taking on the Toyota Camry, Honda Accord and Nissan Altima. Three months into ’11, Toyota has sold 76,821 Camrys, Honda 71,544 Accords (including 5,349 Crosstours), Nissan 69,551 Altimas, and Ford 65,023 Fusions. By now, Mulally must be convinced that the Taurus never will be the sales powerhouse it was, with 5,954 sold in March, off 15 percent. The new, similar-sized Dodge Charger posted 8,986 sales, up 44 percent.

Whither Lincoln?

I didn’t get into Lincoln sales in my April 1 blog. Last month, they were down 2.2 percent, to 8,501. But Lincoln dealers had no Mercurys, which posted 10,486 units in March ’10, and 0 last month. Lincoln sold 1,060 MKSes, off 26.5 percent. Compare that with the Cadillac CTS, which was up 36 percent to 3,904.

Toyota will rise again, but…

A new Camry is due to launch late this year as a 2012 model. Sales will rise, though I think Toyota’s recent quality and public relations gaffes will have an effect, that the new car won’t be an automatic buy for brand loyalists. In the old days, Toyota could manage to keep volume on an outgoing model high, then ramp down production just in time for the new model arrive, thus avoiding heavy discounting. The Japanese parts shortage is a separate issue, but it looks like this giant is showing some weakness in handling the market and its model transitions.

And Honda?

Civic had a strong month as Honda prepares to replace it. Whether c-cars reach c/d-segment sales or not, this is the most compelling segment of the year. The new Hyundai Elantra, Ford Focus and Chevy Cruze will be chipping away Civic’s sales, and I’ll keep a close eye on their numbers. The ’12 Focus’ numbers ought to ramp up to normal levels by late summer. Meanwhile, a steady 30k or so will continue to automatically buy Toyota Corollas.

Let’s not forget compact crossovers.

The old Ford Escape easily beat the newish Chevy Equinox. Ford sold a whopping 23,975, up 25 percent, while Chevy sold 14,949 Equinoxes, up 16.7 percent. Ford did a lot of advertising, and it’s closer if you add in GMC Terrain sales, which were up 29 percent, to 6,301. This standard size for European crossovers is becoming more important in the U.S., and the Ford beat the Honda CR-V’s 21,998, up 42.7 percent. Toyota sold 16,082 RAV4s, off 39.9 percent.

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Regulators: Will Future SUVs Compromise Safety For Higher MPG?

It can be argued that through the way vehicles were forced to change in the 1970s and '80s, the federal government turned the American public on to SUVs. Now it's looking for ways to wean us off that addiction—so quickly that it might affect the improvements we've made in safety in recent years.

Automakers are currently reshuffling powertrains and pumping additional engineering resources into development to meet the federal government's 35-mpg fleet-average target by 2016—with the old distinction between passenger cars and trucks slated to dissolve. And one proposal being considered by the Obama administration would require a 62-mpg fleet average by 2025.

At the same time, everyone involved is concerned about how such a rapid change will affect safety. It's especially a concern when we've been making significant progress in reducing highway fatalities; this past year they were at their lowest level since 1949. And a safer fleet of vehicles has much to do with it.

The Insurance Institute for Highway Safety (IIHS), along with others analyzing injury and fatality figures (like the non-profit Informed for Life) have indicated that vehicle weight and size indeed play a role in survivability. As we pointed out in a recent piece highlighting what you should know about star safety ratings, the overall ratings don't compare across weight classes. And if you place your own safety above all else, the recommendation, from top safety experts, has been to choose a larger sedan or crossover that weighs around 4,000 pounds or just above that.

The chief concern is that, if newer vehicles were to be made considerably lighter while millions of much heavier vehicles remained on the road, it's possible that even loaded with newer safety features, occupant protection could suffer for those in the newer vehicles.

In 1999, federal data showed that SUV occupants in an SUV were three times as likely to die in a crash involving rollover than those in a passenger car. Overall, according to the National Highway Traffic Safety Administration (NHTSA), the fatality rate for SUVs was halved from then to 2009.

Although rollover is still a key concern for SUVs, electronic stability control and other safety features—along with the migration to car-based platforms, in many cases—have steered the numbers in a much safer direction. Considering only vehicles one to three years old, SUVs are now safer than passenger cars overall.

With vehicles like the 2011 Ford Explorer, with its soon-available 2.0-liter turbocharged four-cylinder engine, we've seen that automakers can manage a 30-percent or better improvement in the fuel economy of mainstream models without affecting performance, at only a somewhat higher cost. To do better in such a tight timeframe might require more advanced lightweight materials like carbon fiber or aluminum—which would drive up prices.

Either that, or somehow more of us will agree that small cars will do just fine. Right.

[Wall Street Journal]

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