There appears to be no end in sight to the surge in demand for new vehicles.
The boom continues after 20 consecutive months of year-to-year sales increases through April, which included record model-year sales for '99, record calendar year deliveries in 1999 and volume up 8% for the first half of model year 2000.
There are few losers in these halcyon days of the U.S. automotive industry and many companies have taken advantage of these voluminous times to gain a stronger foothold in the market. The only segment group experiencing declining sales is the large-car group. This segment has dwindled to only six competitors with just two -Mercury Grand Marquis and Dodge Intrepid - increasing sales over last year's pace.
Indeed, sales in the U.S. could well continue their merry way for some time depending on how far manufacturers are willing to go with incentives to offset rising interest rates and inflation. If sales growth slows enough to the point that we see some declines from prior year totals - probably in the latter half of this year - it will take some kind of economic, political or natural catastrophe to knock volumes down to a level that could be considered weak. The probability is high that light-vehicle sales in 2000 will exceed the 17-million level for the first time, besting the record 16.9 million units of 1999.
For the manufacturers, however, the record sales will likely come at a cost in profit margins per vehicle. Competitive pressures are almost sure to lead to more-generous incentives of one kind or another as the year progresses.
The strong economy and the willingness by consumers to spend cash and build up debt is allowing some industries more flexibility in raising retail prices, but not automotive. The majority of buyers already expect some kind of incentive from the manufacturer or dealer when considering a new car or truck, and most, if not all, the high-volume manufacturers will go a long way to subsidize vehicle sales before yielding too much market share. At the same time, many of the smaller-volume brands will be hard pressed to give up on their monthly double- and triple-digit sales gains.
Furthermore, every segment is getting more crowded with product offerings including the areas with the strongest growth, which will add to the price competition.
SUVs now comprise about 20% of the light-vehicle market, and have surpassed pickup trucks as the second largest segment group behind mid-size cars. There's still more room for growth in this segment, but with new entries coming this year like the Ford Escape (which should add between 150,000 to 200,000 sales annually to the SUV segment), Chevrolet Avalanche, Hyundai Santa Fe, Lincoln Blackwood, Pontiac Aztec and Toyota Highlander, competition will get more fierce.
Also, the new hybrid vehicles - four-door trucks with short truck beds - will start to flood the market, and are blurring the line between pickups and SUVs. There's the aforementioned Avalanche and Blackwood, plus the Ford Explorer Sport Trac and Ford F Series SuperCrew pickup. Lump pickups and SUVs together as a group and they hold close to 40% of the market. The portion of that group that's already getting squeezed is small pickups, with sales down 4% during the first six months of the '00 model year. In fact, the only small-size pickup with improved sales this model year is the Nissan Frontier, which last fall became the first model in the small-pickup segment to offer a Crew Cab. Conversely, sales of large pickups are up 12.1% vs. the industry average of 8.2%.
Obviously, rising pump prices have had little or no effect on sales of light trucks. Sales and market share of SUVs, including large SUVs (though they appear close to peaking) and large pickups alone, continue to increase over last year.
Quietly, minivan sales so far this model year have increased by a hefty 12.7% with market share up to 8.4%, highest since the same penetration in '95.
Turning to cars, the new Ford Focus is stirring up the mainstream of the small coupe/sedan segment, but the biggest percentage growth is coming from Korean makes; Daewoo - which overall has the largest percent (363%) gain.
Haig Stoddard is manager of industry analysis for Ward's Communications.
