With the New Year started it seems fitting to highlight where we were in 2006 and where we're going for 2007. This news release came out a couple of weeks ago, but in case you missed it here are some interesting facts from 2006 and the primary activities/trends we see occurring in the world of new cars and trucks over the next 12 months. Unlike the official news release that covered this topic, I'll include some personal thoughts on these issues in this post:
Gas Prices Shift Consumer Demand — Gas prices soared, reaching a national average of $3.03 per gallon for regular self-serve in August 2006, according to the American Automobile Association. As a result, many consumers researched and purchased more fuel-efficient vehicles, including subcompact vehicles, while sales of large trucks and SUVs declined. Specifically:
- Subcompact market sales increased 63% compared to 2005, thanks in part to the introductions of the Honda Fit, Nissan Versa and Toyota Yaris. On average, these three new models vehicles sold 12 days after arriving at dealerships. In contrast, the industry average "days to turn" was 64 in 2006.
- Hybrid vehicle market share increased nearly 35% compared to last year, largely due to the new hybrid tax credits and the introductions of the Saturn Vue Greenline and Toyota Camry Hybrid.
- Compact car market share increased from 15.9% in 2005 to 17.4% in 2006.
- Large trucks and SUVs each dropped nearly one percent in market share. The drop likely would have been much larger without the generous incentives automakers offered to buyers of these vehicles.
* All data reflects activity between January 1 and November 30 of the indicated year.
As I noted in a post last week -- small appears to be big again. --KB
Domestics Lose Market Share — Chrysler, Ford and General Motors continue to feel the heat of import automakers, particularly Toyota. For example:
- Domestic manufacturers' market share percentage dropped from 57.0% in 2005 to 54.6% in 2005. Import market share percentage increased from 43.0% in 2005 to 45.4%.
- All three domestic manufacturers experienced a loss of market share in 2006: Chrysler lost 5.1%; Ford declined 5.4%; and General Motors fell 6.0%.
- In 2006, Honda and Toyota achieved market share gains of 5.1% and 15.8%, respectively. Toyota sales now routinely outpace Chrysler, and for two months in 2006 Toyota sold more vehicles (including Lexus and Scion models) than the traditional number two U.S. automaker, Ford Motor Company.
Domestic market share could drop below 50% this coming year -- tell me that isn't an eye opener. Remember when GM -- by itself -- had 60 percent of the U.S. market? --KB
Incentives Plateau — Incentive spending was relatively flat for domestic, Japanese and Korean automakers, while European automakers continue to be aggressive. Specifically:
- Average incentives for 2006 were $3,306 per domestic vehicle sold and $1,242 per Japanese vehicle sold. Average incentives for 2005 were $3,456 per domestic vehicle sold and $1,109 per Japanese vehicle sold
- In 2006, Chrysler led the domestic incentives war with average incentives of $3,750 per vehicle sold, while Ford spent $3,402 and GM spent $2,998. In 2005, GM led the pack with average incentives of $3,623 per vehicle sold, while Ford spent $3,148 and Chrysler spent $3,510.
- In 2006, Honda spent $708 per vehicle sold while Nissan spent an average of $2,386 and Toyota spent $1,046. In 2005, Honda spent $646 per vehicle sold while Nissan spent an average of $1,769 and Toyota spent $961.
- In 2006, Korean automakers spent $1,818 per vehicle sold, up only 1.2% from $1,797 in 2005.
- In 2006, European brands spent nearly $2,730 per vehicle, up over 31% from $2,078 per vehicle in 2005. Included in that amount is incentive spending on subsidized leases, which rose over 35%.
Interesting that average domestic incentives dropped by $150 while average Japanese incentives increased by about $135. Still a big gap between the two (over $2K), but a positive direction for the domestics, and an indication that "value pricing" is working (for more than just GM). --KB
2007 Automotive Trends Spotted by Edmunds.com*
Edmunds.com expects light vehicle sales to be flat in 2007, with sales near expected 2006 levels of 16.5 million.
"Gas prices will be a leading factor in how consumers choose what vehicles they purchase in the coming year," said Jesse Toprak, Executive Director of Industry Analysis for Edmunds.com. "Automakers who are prepared for that trend will enjoy great success in 2007."
Edmunds.com also expects that:
- Many new products will attract consumers to domestic showrooms. GM has already made headway with the Chevrolet Silverado and GMC Sierra, while the Buick Enclave, Chevy Malibu, Chrysler Town & Country and Ford Edge should also help keep domestic dealerships busy. However, U.S. automakers will continue to lose market share to Japanese brands and Hyundai. The Toyota Tundra, voted Edmunds.com's Most Significant Vehicle of 2007, will take a chunk of large truck market share from the domestic automakers. This is a very profitable segment, so any loss in market share will have a disproportionately large impact financially. In other words, it will take more than some new crossovers, trucks and sedans to stop the bleeding. --KB
- In terms of sales volume, Toyota will overtake Ford as the number two automaker in America by mid-2007. This one won't surprise many, but still a major milestone that few could have fathomed even a few short years ago... --KB
- Sales of crossover vehicles will continue to improve as midsize and large SUV owners seek better fuel economy. More attention will be directed to this issue as the new Environmental Protection Agency (EPA) fuel economy ratings are released for all 2008 model vehicles. It will be interesting to see how these new EPA fuel ratings affect vehicle sales, but it's hard to believe they will help move large vehicles off lots. --KB
- Hybrid vehicles will continue to gain mainstream interest with the release of new models such as Chevy Tahoe, Dodge Durango, GMC Yukon, Nissan Altima and Saturn Aura Greenline. The new EPA ratings will hurt hybrid vehicles' fuel economy figures, but consumers will be drawn to the technology regardless. Price premiums on hybrids will decrease as more models enter the marketplace and help satisfy demand. I see this as a race between dropping hybrid vehicle costs and dropping hybrid vehicle mileage ratings. Either way, the consumer wins with cheaper hybrids and more realistic fuel economy expectations from them. --KB
- U.S. acceptance of diesel will expand with the introduction of Mercedes-Benz's new BlueTec diesel technology and the new diesel Jeep Grand Cherokee. This one is looooong overdue. It's time Americans woke up and smelled diesel's potential -- which isn't nearly as smelly as it used to be, btw. --KB
- Leasing will continue to boom, with luxury manufacturers enjoying the largest gain. Thanks to leasing's recent resurgence, certified pre-owned sales will increase in 2007 as a significant number of off-lease vehicles will enter the marketplace. The smartest vehicle purchase (from a purely financial standpoint, at least) has always been a late-model, slightly used/certified vehicle. These leasing deals will only increase the amount of great cars flooding the used market. If you're one of those people who says, "I just couldn't buy a used car" you're really missing an opportunity here. --KB
- More consumers will understand and reap the benefits of working with auto dealerships' Internet departments. If you still put "buying a car" into the same category as "going to the dentist" you obviously haven't been using Edmunds.com. But if you're reading this blog you've probably already crossed over to the 21st Century of car buying, and you're fully aware of how much fun the process can be. --KB
By civicguy3
on January 2, 2007
10:29 AM
The whole incentives part really shocked me. Are they telling me that when my dad bought a 2007 Accord VP a couple months ago for $17k (after 3k of negotiating) honda made a profit of $16292??? Wow... Also, as these EPA figures get real, automakers will hurry to improve their vehicle's mileage. If the Prius's 60 city rating drops to 45, consumers that are just shopping around will feel betrayed. So toyota will probably try to improve it to at least around 50-55.
By kurtamaxxxguy
on January 2, 2007
10:31 AM
Isn't there another major market trend not touched here (perhaps I missed something?)... the re-emerging RWD performance oriented car?
Most car blogs I've visited get swamped any time such a vehicle is discussed (GM's blog had one of its longest threads discussing the Camaro).
And at the recent LA Auto show, those vehicles (Euro and USA versions) were getting the big crowds.
Have there been any predictions as to how these vehicles will reshape the market?
By roar02ram
on January 2, 2007
10:50 AM
Karl, I think you're missing the point with Toyota and the imports. The same reasoning that might allow the Tundra to steal sales from the domestic automakers will probably allow other automakers to steal sales from Toyota: witness the Camry's disappointing 5th out of 6th finish in Car and Driver's latest comparo, and slowing sales of the Avalon. The fact is that if Toyota doesn't have sterling reliability, then there's a lot less reason to buy their cars. Ergo, with everyone else catching up in terms of quality, they're more vulnerable than you might think. Toyota'll overtake Ford, but I think those rising Japanese incentives are proof that the psychological divide that most people place between domestic automakers and Japanese automakers is shrinking. With it shrinking, automakers - ALL OF THEM - are going to have to compete solely on their products, not intangibles like quality or reliability or history. That's HUGE!!!! The move affects Toyota in particular because Toyotas generally have lower incentives and higher sticker prices (as opposed to Hondas, which are generally priced about right and Nissans, which are more likely to carry incentives). Combine that with all of the angry backlash that could result from the revised EPA ratings (barring a revision effort as civicguy3 mentioned), a fact that applies to the Tundra, the Sequoia, and the hybrids, mind you, and 2008 might be a rough year for Toyota.
By 1487
on January 2, 2007
02:03 PM
I dont know how the incentive values are calculated but I want to know how Toyota/Nissan incentives looks so low here but at my local dealer vehicles are being sold for thousands off MSRP. Isn't there any way to record the average difference between price paid and MSRP? The methods being used do not accurately portray how much people pay for imports. What about factory-to-dealer cash that allows dealers to drop the price by $2000 in addition to the manufacturers incentives? Toyota SUVs and trucks in my area are selling for $4000+ under MSRP.
As for the increasing marketshare of the Asians, that is inevitable due to the # of models they offer nowadays. Each and every one of them adds models each year and thus give consumers more options. Many Asian models are not best sellers by a long shot, but when you increase your offerings you increase your sales. Combine that with the fact that the domestics are trying to back off of trucks and lowering incentives and you have a clear understanding of why they continue to lose share. If the Big Japanese 3 had the same # of models they had a decade ago their marketshare wouldn't be close to what it is today, but they are becoming (along with Hyundai) full line manufacterers that compete in every segment.
The Tundra isnt going to take signficant share from anyone. If anyone is really going to suffer, it's going to be NIssan. I dont see why the press is so confident that Toyota will sell 200k Tundras when Nissan couldnt move half as many Titans last year.
By jerrywimer
on January 4, 2007
07:02 AM
I'll be blunt and straight to the point. In the past GM has concentrated on maintaining market share, in a quantity versus quality mindset (in other words, low to no profit per sale over a large number of sales versus larger profit per sale over a smaller number of sales). Now GM is changing to concentrate on profits, meaning the opposite of the above. If it means selling far fewer vehicles but still making a large profit per vehicle, so be it. That would mean (most likely, given the import brands' expansion to full lines) losing market share.
Market share is nothing more than an indicator of volume of product sold. It tells you nothing about financial health (or future viability) of the product, unless you also know the profit or loss for the product. I'd much rather GM continue to lose market share while increasing profit on each and every vehicle than it continue to bleed in the name of staying ahead of the competition in volume. Toyota can take over the volume channels (including the evidently highly coveted rental segment), if it means GM continues becoming more financially stable.
Last word from me about that- it never ceases to amaze me how when GM was in the former mindset (maintain market share at all costs), how their focus on that instead of product and profit was considered a bad thing. And yet now that they've adopted the then (supposedly) desired mindset of product and profit that it's now a bad thing to let the market determine their share while keeping them financially healthy (or in the current situation, moving them in that direction). This is one of the reasons why so many people scream that there is bias against the domestics- they do something and get nailed for not doing something else. So they change to do it the *other* way and suddenly that's the wrong thing.. Smells of people spending too much time on the debate team and being told *what* they will argue against (ie. against domestics).
By 1487
on January 4, 2007
09:19 AM
Jerry,
remember, GM is wrong no matter what. Logic had no place in this discussion. Onlyin America can a company with 24% share get constantly criticized as a failure while the #3 maker with 15% share gets all the accolades and is praised as the unquestionable market leader. Toyota has been selling high quality vehicles in the US for over 30 years and they are just now coming to this level of marketshare and people act like this has happened overnight. Toyota has a plan and they are executing it and it's obvious that they are so profitable that they are willing to sell vehicles at $4000 off sticker to gain share. They keep saying they dont care about share or passing GM but that is a load of BS. When you look at BMW or MB ads you don't see mention of sales and huge discounts, but when you look at Toyota ads you see just that. If they are such experts at giving consumers what they want why are they discounting their non-hybrid vehicles so heavily?
By flicmod
on January 5, 2007
09:12 AM
1487,
You're exactly right. Only in America. I think the reason everyone thinks Toyota is doing this overnight is because all they hear about is how GM stock is dropping and how much money they're losing. Everyone eyes the #1 slot because they're on top. Remember, the average person isn't an enthusiast like we are. They have no clue about automotive news or trends or offerings. They just go by what they hear on TV or radio or newspapers. They don't look into things like we enthusiasts do.
It doesn't help that Toyota realizes the ignorance of the average American and exploits it to the fullest in order to gain more ground on the domestics. All of their ads reflect this.
My opinion? Toyota is the next GM. They are doing exactly what GM did 10-12 years ago up until now. They're concentrating on profit alone. They're worried about selling cars and making money instead of designing good cars and customer satisfaction. That's not what Toyota used to be. If they want to strive to take the #1 spot, let them. They'll inevitably face the same problems that GM is facing right now. Build quality will deminish; model lines will be expanded beyond any logical reason; lack of foresight on market trends will start to arise. That's Toyota's future if they continue on the same path they are right now.
By jerrywimer
on January 8, 2007
06:04 AM
Yep. I personally hope Toyota changes this trend asap, because their products of only five years or so ago were built much better. GM and Toyota could very well change places, and in more than just market share.