Marginal: Surprise?

Why does the shift in consumer demand toward small cars seem so surprising?

So now people are buying small cars.
#Dodge #Chrysler #Honda


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So now people are buying small cars. The Ford Focus, despite that it is considered by some to be lacking vis-à-vis the benchmarks in the category (e.g., the Honda Civic, which has styling but not Sync), has become a crazy hit in the Ford lineup. The popularity of the Focus-the company moved 23,850 of them in April-may actually eclipse some of the shine from the forthcoming launch of the Ford Flex, the crossover vehicle with the MINI profile and the maxi sales potential (or at least the intrinsic showroom appeal to replace that which the Explorer once had). Look across other vehicle manufacturer lineups and you'll see the same sort of thing. The Chevy Cobalt, for example, which had pretty much become an afterthought, at most, in the massive shadow of the Malibu, has become the Little Car that Could. In April, the Cobalt actually outsold the Malibu-18,636 units to 17,050-and this is not to take anything away from the Malibu, because it is selling exceedingly well. And with a newly introduced version of the Cobalt, the XFE, which provides a class-leading 25 city/36 highway MPG, the Cobalt will become the Little Car that Can.

Meanwhile, pickup trucks and large SUVs are in free fall: F-Series, Silverado, Suburban, and Expedition are all off by at least 20% compared with last year. And looking forward, there is no end in sight for this spiraling tumble. They are sort of like an automotive equivalent of a root canal: If you need one, you need one. If you don't, what are the chances you're going to get anywhere near that reclining chair? This is a big year for pickups, given that there will be a new Dodge Ram and a new F-150. While the freshness of these two vehicles may give them a boost, it is probably not going to be the sort of catapult that has long been the norm. Pickups and large SUVs are not going to disappear from the market. But it is likely that the people making vehicle choices are going to be one heck of a lot more judicious than they might have previously been (i.e., no more of the, "Well, we do like to garden, so that pickup bed is handy when we go to the nursery" or "Well, we do like to take the kids and their friends up North during the summer, so the SUV would be roomy enough"). GM and Chrysler are putting hybrid versions of their big vehicles in the market, there is still the question of the additional cost of buying a hybrid, and given prevailing economic conditions for large numbers of people, this is not going to be an easy sell.

Meanwhile, the presidential candidates are now becoming familiar with words like "ethanol" and "cellulosic" and "plug-in" and "hybrid"-a vocabulary that wasn't part of the political stumping four years ago. They are even, possibly, beginning to recognize the inextricable links between the economy, health care, trade, and the auto industry-links that cannot be broken without dire consequences; links that must be strengthened if the U.S. wants to continue to be a dominant player on the world's stage. (Have you noticed the zeal with which China is pursuing the development of its own auto industry? If, as some people would lead us to believe, it is a world that is about services and bits, not manufacturing and mass, then why is this the case? Because an auto industry has all sorts of ramifications for an economy-many of them positive if done right. The growing number of cars and trucks in China is one of the primary reasons why gas prices are rising.)

What is somewhat puzzling about this is that this shift to small cars seems to have taken some auto executives by surprise. Did they imagine that the demand for SUVs, pickups, and V8 engines would continue unabated? Even if there weren't rising gas prices (hard to imagine, I know), demand would have undoubtedly begun to soften if for no other reasons than (a) everyone who needed one has one-or two or more and (b) the vagaries of fashion certainly have an effect on vehicle sales, and when seemingly everyone up and down your block has the obligatory three rows or four cab doors, something else is likely to catch your eye. And there are things like the overcooked and now under-heated housing market. Here we have issues of (a) the fall off in construction, which diminishes the demand for trucks and (b) the mortgage crisis, which makes it difficult for many to make mortgage payment and vehicle payments that are mortgage-like in size.

The solution to this? Technology. Technical development that will create fresh, new products that have powertrains that sip petroleum at most, and possibly forego it for some other fuel source, be it gaseous or some other form. Just as there have long been portable radios, tape players, and then MP3 devices, the auto industry needs to come up with an iPod, something that is truly a game changer. This isn't going to happen quickly enough, but it ought to occur with more zeal than is presently evident. Otherwise, the consequences are going to be less attractive than the ever-increasing numbers at the gas station.