Sales to Decline 1%

Coming off the third-best year on record, expect solid results again for U.S. light-vehicle sales in 2006, albeit a slight decline from last year.

This despite the 7.5% gain in January caused by huge volumes of Big Three fleet sales to rental and commercial customers.

Unless the economy sees robust growth of 4% or better in real gross domestic product — most predictions range from 3.0% to 3.5% — several factors will work against a volume gain.

First, cutbacks in capacity at General Motors Corp. and Ford Motor Co. will limit inventory levels during the typical bargain days of the summer and at the end of the year. There might be great deals but not as much excess stock as in recent years.

Additionally, attempts to pull back on incentives, plus long-term commitments by GM and Ford to reduce sales to rental outfits, will favor an overall industry decline.

Expected downturns for the Big Three and Nissan North America Inc. — with the caveat that a downturn at Chrysler Group would create a bump in the road — largely will be offset by gains at Toyota Motor Sales U.S.A. Inc.; American Honda Motor Co. Inc. and several smaller volume players, such as Hyundai Motor America Inc. and BMW of North America LLC.

Thus, Ward's forecasts sales of 16.8 million light vehicles for 2006, down 1.0% from 2005's 16.95 million but still one of the better years on record. Outside of the broad-based trends, there are some significant dynamics to look at this year. One is a possible overreaction to a perceived move to fuel-sipping vehicles.

There is a definite shift from the traditional truck-based SUV to car-based cross/utility vehicles, and passenger cars increased market share in 2005 over 2004. SUV market share dropped to a 9-year low of 14.3%, while CUVs climbed to 13.0% and likely will surpass SUVs this year.

Passenger-car share of the light-vehicle market in 2005 increased from the prior year for the first time since 1981, rising to 45.2% from 44.5%. In 1981, it increased to 80.5% from 80.1%.

The general sense is consumers last year flocked to more fuel-efficient, affordable cars. Some did. But the major growth, based on Ward's segment groups, was in Large Cars, which basically are big sedans sold at near luxury-car prices. Albeit small in volume, Large Car sales increased 30.9% in 2005, with its 4.2% market share the highest since 4.3% in 1998.

By comparison, small cars saw a slight gain of less than 1% due to a 27.8% gain in the group's specialty segment, among them the Scion tC and Mini Cooper.

Surprisingly, it was not a shift to the more-affordable mainstream small cars — such as the Chevrolet Cobalt and Honda Civic — that gave the segment its gain.

Furthermore, sales of Middle, or midsize cars, were relatively flat with 2004.

Sales of sedans built on rear-wheel-drive platforms in the Large and Luxury Car Groups also bolstered passenger-car sales, although such vehicles often do not have better gas mileage than light trucks.

Sales of the RWD sedans increased 10.5% in 2005. Market share of 5.3% grew from 4.8% in 2004, a notable uptick from 1999's 4.1%, when such vehicles last hit a trough.

Also worth noting, 10 years ago, sales of front-wheel-drive Large-Luxury cars outdid RWD by close to a 2:1 ratio. Last year, the ratio was nearly even with FWD cars at 906,832 units and RWD models at 893,559. Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. all are bringing new Lower Small, or subcompact, cars into the market this year.

Ford and Chrysler are among the other auto makers that say they will be in the subcompact market sometime in the future.

The likely result will be a few winners, while the rest will be trying to unload unwanted products at little or no profit.

Another prediction: GM will make a killing in large SUVs. The auto maker's new GMT900 fullsize SUVs (including Chevrolet Tahoe) likely will carry incentives by the end of the year but will remain profit drivers for both dealers and GM.

Sales have spiraled downward for big SUVs, but a large part of that has been lack of fresh product. Ford comes to market later this year with its redesigned Expedition and Navigator. But as with Toyota and Nissan, Ford has failed to penetrate the psychological hold GM's products have in the segment.

In the pickup sector, Toyota dealers in early 2007 get the third-generation Tundra fullsize pickup, much larger and improved over its predecessor. With increased production capacity on tap, the new Tundra likely will become a 250,000-unit annual seller from the current 100,000 yearly sales.