Seismic Shift to Smaller Segments Rocks U.S. Market, Edmunds' Analysis ShowsBy Michelle Krebs May 28, 2008
By Dale Buss
American car buyers have been flocking to small cars, crossovers and hybrids so massively -- and so quickly -- that they're threatening to tip the auto industry on its axis.
They're leaving behind trucks, large SUVs and, to a lesser extent, luxury vehicles of all kinds in favor of more fuel-efficient and less-expensive segments. An Edmunds.com analysis shows that this shift has precipitated dramatically over the last two months, both in terms of actual transactions as well as in shopping trends measured on the Edmunds.com site. Until March, this pattern of segment migration had been accelerating markedly but rather gradually.
But a 10 percent increase in U.S. gasoline prices in March and April alone, to the realm of nearly $4 a gallon, appears to have provided the catalyst for a shift that is bigger and faster than any ever tracked by Edmunds.com.
"Gas was getting close to $4 a gallon, and if you live in an area of high gasoline prices, with a vehicle with a big tank, it could cost you $100 to fill it up," noted Jesse Toprak, executive director of industry analysis for Santa Monica, Calif.-based Edmunds.com.
Gasoline prices rose 10 percent in March and April alone, to a nationwide average of $3.44 a gallon, noted David Tompkins, Edmunds.com's executive director of industry analysis.
And with gasoline prices having penetrated the $4-a-gallon mark in many areas of the country during May, Edmunds.com expects that May sales results -- to be revealed June 3 -- will show that the shift has grown further. "We'll see the extremes continue to grow," said Jessica Caldwell, U.S. industry sales analyst for Edmunds.com.
Startling Rise of Crossovers
The most stunning shift has been into crossovers and compact SUVs. An Edmunds.com analysis shows that, for this year through April, compact SUVs' share of U.S. sales grew by 62 percent over their level for all of 2003, to a 6.3 percent share of the overall market from just a 3.9 percent share.
But that figure understates the drastic nature of the shift to compact-SUV sales in just the last few months. The segment's share of the overall market was just 4.1 percent as recently as for all of 2007. This means that U.S. consumers have streamed into the crossover and compact-SUV category by a much higher proportion so far this year than into any other segment.
Compact car sales' share, meanwhile, grew by 36 percent, to an industry-leading 20 percent share of the U.S. market so far this year, compared with just a 14.8 percent share for all of 2003. By last year, compact-car sales already had grown to an 18.3 percent share of the U.S. market, the Edmunds.com analysis shows.
Large-car sales have ticked up significantly over the last five years and even very recently as well. They comprised 27 percent more of the overall market for 2008 to date compared with 2003, or a 6.3 percent share compared with a 5 percent share five years ago. For all of 2007, large cars held a 6.1 percent share of the U.S. market.
On the flip side, three segments each have lost more than 20 percent of sales share so far in 2008 compared with all of 2003.
Compact trucks have been the biggest losers by far, with sales share eroding by nearly 37 percent, to a 3.1 percent market share to date for 2008 compared with a 4.9 percent share for 2003. The segment's market share was also 3.1 percent in 2007.
Minivans have continued to lose sales and market share despite Chrysler's introduction last year of new versions of the segment leaders. Overall minivan sales share dropped by nearly 25 percent so far this year compared with all of 2003, to a 4.9 percent market share compared with 6.5 percent in 2002 and compared with 5.1 percent last year.
Large SUV sales share plummeted by more than 20 percent for 2008 to date, to just a 4.1 percent market share compared with a 5.2 percent share in 2003. This segment also saw the most dramatic dropoff in share of any segment from 2007, when large SUVs held 4.6 percent of the U.S. market.
Hybrids Uber Alles
Crossing segment lines, sales of hybrids rose quickly to new records in both March and April, Edmunds.com's analysis shows. "And the demand for Prius alone is almost at a fever pace," Caldwell said.
Online consideration of hybrid models rose more than 100 percent during March and April compared with January and February, as measured by visits to New Vehicle Detail Pages (NVDPs) on Edmunds.com, Tompkins added.
Overall on Edmunds.com, consideration trends during March and April pretty well mirrored what was actually occurring in dealer showrooms across the country. "Consideration for subcompact and compact cars rose as gas prices increased," Dr. Tompkins said, "while consideration for most trucks and SUVs plummeted."
In regard to SUVs in particular, these trends may reflect a solidification of the view among many American consumers that large SUVs are more of a "lifestyle choice" than they had figured. U.S. buyers have been abandoning large trucks in droves if such a vehicle isn't necessary for work or some other very practical reasons. Similarly, perhaps, Americans are shedding big SUVs in record numbers.
"Maybe they were more of a lifestyle vehicle than people had thought," Caldwell said. "Unless you have a lot of children, and a lot of stuff, people were thinking, do I really need all this capacity to haul stuff around at $4-a-gallon gasoline and with all the financing I'm paying?
"Plus, the automakers have been making it a lot easier for these people to move to smaller SUVs and small cars, which have become more flexible with fold-down seats and so on. They're finding that other vehicles will meet 95 percent of the needs that they had for their large SUVs."
Less pronounced but also significant was Americans' shift away from luxury vehicles. "Consideration for all luxury segments has dropped, even for car segments and those with hybrid vehicles in them," Tompkins said. "The biggest losers are luxury SUVs and the more expensive premium luxury cars."
Online consideration for entry-level luxury SUVs fell by 24 percent, the most during March and April compared with January and February of any luxury segment, Dr. Tompkins said. Premium luxury car consideration fell by 12 percent, but midsize-luxury car consideration eased off by only 4 percent.
Toprak said that the erosion in sales and consideration of luxury vehicles reflected overall economic concerns rather than just higher gasoline prices per se.
"Consumers who can afford luxury cars, particularly those over $50,000, still aren't as concerned about high gas prices" as are other Americans, Toprak explained. "But we're seeing some postponement of purchasing decisions by upper-middle-class families because they, like other consumers, perceive the economy as unstable and unpredictable -- and that results in real erosion of wealth, especially in home values. It results in a psychological impact on the eagerness of these consumers to purchase; it produces more of a wait-and-see attitude."
Still, Toprak noted, luxury segments are holding their own in terms of their shares of an overall down market. And, Caldwell said, the luxury market has moved up and down over recent months, in a less consistent pattern than the overall market shift to smaller and fuel-friendlier vehicles.
"To a certain degree, [luxury buyers] buy what they want to buy," she said. "Maybe that's not a large truck, but large trucks have the same price tag as a [BMW] 3 Series, and so maybe these buyers would rather have something nicer for themselves. These people aren't afraid to go into debt for a vehicle purchase."
Caldwell also predicted a potential strengthening of luxury sales over the summer because several manufacturers are introducing small luxury SUVs, which could be snapped up eagerly by traditional buyers who have been waiting for more fuel-efficient luxury offerings.
At the same time, during March and April U.S. consumers also displayed their quickly growing interest in ensuring that they take amenities with them as they shift to smaller and more fuel-efficient segments. Consumers were paying more for typically equipped small and midsize cars and less for SUVs and trucks than they did during January and February, Dr. Tompkins said.
And compact cars are selling more quickly than before, even during a time of the model year during which vehicles typically begin to sit longer on dealer lots, he said. "So, dealers are enjoying higher profit margins on those vehicles," Tompkins said.
Online consideration of subcompact cars, for example, rose 28 percent during March and April compared with January and February, according to Edmunds.com research.
Compact-car consideration rose by 16 percent, and midsize-car consideration by 14 percent.
Meanwhile, large-truck consideration fell by 17 percent during March and April versus January and February, and large-SUV consideration declined by 22 percent.