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Archive for Friday, September 11, 2009

Buyers switch to smaller, cheaper cars

September 11, 2009

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Tony Balster, of Victory Auto Wreckers, loads a car from the Cash for Clunkers program in this Aug. 4 file photo at NorthSide Toyota in Chicago. The popular Cash for Clunkers program this summer showed that budget-conscious Americans will embrace small cars.

Tony Balster, of Victory Auto Wreckers, loads a car from the Cash for Clunkers program in this Aug. 4 file photo at NorthSide Toyota in Chicago. The popular Cash for Clunkers program this summer showed that budget-conscious Americans will embrace small cars.

— Big cars and trucks are out. Smaller ones that offer more for your dollar are in. And many drivers will hang onto the new cars they buy longer.

We’ve seen this before — in the 1970s. But this time, American car-buying habits have likely changed forever.

Scarred by the worst financial crisis since the 1930s and still leery of high gas prices, people are walking into showrooms intent on spending less. The trend is strongest among baby boomers, who are 44 to 63 years old and make up a quarter of the population, dealers and industry analysts say.

A generation ago, boomers drove the economy out of the second-worst recession since World War II. After the downturn ended in 1982, they went on a buying spree throughout the ’80s; for many, free-spending became a way of life that didn’t end until last year. But their investments and home values have taken a hit. And with time running out until retirement, economizing on the second-biggest purchase most people make has become common.

Big awakening

“Up until now it’s ‘I want bigger and more than I had last year,”’ says Jerry Seiner, who owns several GM franchises in the Salt Lake City area. “This has been the biggest awakening of the United States population since the Great Depression.”

Ford’s top sales analyst, George Pipas, describes the shift as one from “conspicuous consumption” to “careful consumption.”

To a degree, the shift has been forced on consumers. The Great Recession ended the days of easy credit, which propelled car and truck sales most of this decade. Sales ballooned to record numbers of about 17 million vehicles a year in the first half of the decade.

Today, loans are harder to get and come with higher payments. About 60 percent of buyers finance a new car, and many no longer qualify for luxury models — or want big monthly payments.

Sale projections

The trends suggest annual vehicle sales will stay close to this year’s 10 million level instead of rebounding to mid-decade levels. It was the collapse of the sales rate to as low as 9.57 million in January 2009 that pushed GM and Chrysler into bankruptcy reorganizations financed by the federal government, leaving Uncle Sam with a controlling stake in GM and as broker for Fiat’s takeover of Chrysler. Even mighty Toyota, which has done relatively better than most, posted the biggest loss in its history in its last fiscal year.

“I think caution will be with us for a while,” says Martin Zimmerman, a former Ford Motor Co. chief economist who now teaches at the University of Michigan.

Even before the collapse of Lehman Brothers triggered the financial industry meltdown a year ago, buyers’ habits were starting to change. Fresh off a summer that featured $4 per gallon gas, people entered showrooms thinking smaller and armed with dealer invoice prices and rebate offers gleaned from Internet sites.

Small cars made up just 12.6 percent of the market in 1998, but that has grown to 21.1 percent, according to Ward’s AutoInfoBank. In August, sales of the smallest domestic cars tripled from a year earlier.

Automakers are banking on the shift being permanent, unlike the last big swing to small cars, which followed the Arab oil embargo in 1973 and another oil shock at the end of the decade. People went back to larger cars as soon as oil supplies increased and gas prices went down. From the ’80s until last year, gas stayed relatively cheap. Besides big passenger cars, the “light truck” market — minivans, SUVs and pickups — exploded and U.S. automakers made billions.

This time, though, higher gas prices are more likely to stick. The end of the global recession and burgeoning auto markets in China and India are expected to increase the demand for oil. Higher government fuel economy standards also will drive sales of small cars.

The shift will leave Detroit automakers no choice but to figure a way to make money on compact cars. In the past, these were money losers and were subsidized by big cars and light trucks.

GM and Ford say contract concessions from the United Auto Workers make it possible to turn a profit on U.S.-built compacts. GM even says it can make money on subcompacts built in Michigan, but Ford and Chrysler will build them in lower-cost Mexico.

Comments

SettingTheRecordStraight 5 years, 3 months ago

And watch auto accident death rates begin to ratchet up from their historic lows.

A family definitely trades safety for efficiency when switching from a large SUV to sub-compact hybrid.

zzgoeb 5 years, 3 months ago

It's is a wrong-headed to assumption that "bigger is safer"...remember the famous rollover suit from some years back with a big SUV? Most drivers are not experienced in handling large, top-heavy vehicles, and in a highway speed emergency will wind up in the ditch on the roof...Chiefs star Derrick Thomas died in a crash in a monster sport ute that rolled.

Small cars handle better, and crash with less inertia, making them safer. If we get the whales off the road, we will have less gridlock(more space per vehicle), more fuel, and better safety.

SettingTheRecordStraight 5 years, 3 months ago

zzgoeb,

I'll stick with my SUV (until the environmentalists make them illegal) and you can keep your Smart car.

Note that I'll travel with peace of mind knowing my family is statistically less likely to die in a head-on collision because they're in a larger, more sturdy vehicle.

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