Nice time to be a Toyota/Lexus dealer

Sales of U.S. light vehicles will be strong this year even with the halcyon growth of 1999 and 2000 gone. After two consecutive record years that far outdistanced previous highs, 2001 is still expected to be the third best ever, which should be enough to keep nearly everyone happy at least on a sales volume basis, though not necessarily from a profit standpoint.

Beginning with last October, and including an estimate for February, sales have now fallen from the same year-ago period for five consecutive months after having increased in 19 of the previous 20. Sales are down 7.4% during that stretch and the industry isn't likely to record a monthly gain until the fourth quarter of this year at the earliest.

In fact, showing how strong was 2000's light-vehicle total of 17.35 million, sales have a good chance of declining in every month of this year from last year, but the calendar year tally could still be the third best ever by a few hundred-thousand units.

Most forecasters -- including the manufacturers themselves as well as prognosticators watching the industry from Wall Street and elsewhere -- predict 2001 sales ranging from 16 million to 16.6 million. (Ward's is leaning toward 16.3 million for the calendar year, edging out 1986's 16.06 million for third place.)

How the year finally ends will, of course, depend on the economy, and a lot on how the Big Three handle knocking down their inventory to get it more in line with demand.

Production cuts have not been working fast enough in reducing bulging inventories, particularly at General Motors Corp., and incentives are starting to get more generous again among the traditional domestic brands.

Right now, dealers selling Fords, Chevrolets, Dodges, Jeeps, Lincolns and Cadillacs are at the core of the downturn, despite in most cases having an overabundance of supply relative to their competition. Market share for these brands has been dropping, while there are 21 brands showing an increase. What's more, 16 of those brands have recorded not just higher market share, but higher sales volumes in the '01 model year through January compared to year-ago.

Although not the lure in 2001 that they were in 2000, rebates and low-interest financing continue to induce higher demand. A lot of sales already were pulled from 2001 into 2000 with last year's largess, and retail incentives now are probably pulling some sales from the second half of this year.

If current mainstream thinking about the economy is right, growth should pick up in the second half of this year. Normally, that would bode well for automotive sales, but possibly not as well for dealers of the traditional Big Three brands as a whole. As the Big Three pull more sales forward through expensive partial subsidizing of the prices, they could be losing sales of higher profit margin vehicles later.

Toyota, Honda and some smaller volume brands should continue to see good times, and at the expense of most of the domestic brands.

Toyota, and its sister Lexus division, is especially riding high now and for the foreseeable future. It may well increase company sales this year no matter how much of a downturn the industry takes. Its Sequoia large sport/utility vehicle is adding volume, Toyota has gained a firmer foothold in the large pickup truck segment with the Tundra and the bread-and-butter Camry midsize sedan gets a makeover this fall. All this will be followed next year with a redesign to the Corolla small car, just in time to pick up any slack from the hot-selling Ford Focus (which will be two years old in its current form) and to hammer harder on the aging Chevrolet Cavalier.

Toyota dealers also started sales of the Highlander in January, their first entry in the trendy cross/utility vehicle (CUV) segment, which was pioneered by the Lexus RS 300. CUVs are the only truly hot segment group in the market today. (CUVs are a new segment group created by Ward's as of the '01 model year to separate vehicles with hybrid body styles, but with passenger car attributes a dominant characteristic. With the exception of the Chrysler PT Cruiser, the majority of the vehicles currently in this segment group were previously considered sport/utility vehicles (SUVs)).

Market penetration for CUVs so far in the model year has nearly doubled. The small car segment, which has been reinvigorated thanks to the Focus and offerings from Hyundai, Daewoo and Kia, is the only other segment group to record a gain in the first four months of the model year. Indeed, the PT Cruiser is largely responsible for making Chrysler -- including sales of leftover Plymouth models -- one of the only two Big Three domestic brands, along with Saturn, to post an improved market share gain over last year.

Using percent change in market share as a measure, Honda's Acura division is the hottest brand in the early going of this model year. Its success is largely because it's a low-volume marque to begin with, and any new product or redesign is going to give it a significant percentage gain in sales. But its market share is up 42% for October-January vs. year-ago, and much of that gain is because it entered the CUV segment - its sister division Honda's CRV also was a pioneer of this segment - with the MDX, the replacement the more truck-oriented SLX.

Kia and Daewoo are right behind Acura as big market share gainers in the early going of '01, followed by BMW and Hyundai. The European makes continue to shine as whole, but Ford Motor Co.'s Jaguar, Land Rover and Volvo brands are notable as the only market share losers among the European brands. Ford is positioning to change that; see story starting on page 26.

Haig Stoddard is manager of industry analysis for Ward's Communications.