A Closer Look at October Sales Numbers Shows Things Aren't What They
Seem

Wall Street Journal - November 6, 2006

Gasoline prices dipped back below $2.50 a gallon in October, and Americans rushed out to buy big sport utility vehicles as if the July-August fuel price panic had never happened.
That was one widely reported story line out the car business last week. But things are never quite what they seem. Nothing makes a monthly or quarterly result look better than having suffered a debacle the previous year. Add a generous helping of new models and pump up the cash back and discount financing offers, and a mediocre month can masquerade as a good result. In reality, it looks like the car business is in for some rough sledding going forward, which puts canny shoppers in the driver's seat.

First, let's have a look at the underpinnings of the SUV "comeback" in October. To be sure, sales of several leading names in the traditional, pickup truck frame sport utility segment surged relative to one year ago. GM 's Chevy Suburban sales jumped nearly 64%. Ford Motor Co. got a boost for the launch of its extensively redesigned Expedition, as sales for the model bounced up 41% compared to October 2005. Demand for the Chevy Tahoe nearly doubled. And DaimlerChrysler AG's managed to increase sales of its long-suffering Jeep Commander by 149%.

Of course, one year ago in October, the Detroit brands had one of their worst months in years, as they finally stopped offering ordinary customers the same low prices offered to company employees. The employee prices for everyone deals propelled a sales explosion in the summer of 2005. By fall, dealer stocks were depleted, and the post-Katrina gas price spike had spooked the market.

If you compare last month's sales to October 2004, a different picture emerges. Sales of all SUVs, including truck-based and car-based "crossovers" were down nearly 10% last month compared to October 2004 figures, according to Autodata Corp.

Moreover, it appears that demand for large SUVs and large pickups last month was driven to a large extent by consumers who already owned those vehicles, rather than buyers new to the segment. Lured by richer discounts, substantially improved new models, and undoubtedly reassured by lower gas prices, more owners of big SUVs got off the fence and bought a new one.

When gas was hovering around $3 a gallon, only 25% of consumers who owned a Chevy Tahoe traded for a new one, according to data from the Power Information Network. But during the last three weeks of October, those loyalty scores rose to as high as 35%.
The Ford Expedition also got a bounce from loyalists coming off the fence. During the summer, only 16% of Expedition owners were trading for a new one, according to PIN data. But in October, as the redesigned Expedition started rolling out of Ford's Michigan Truck factory, the share of Expedition owners trading to get a new Expedition rose as high 29.8% during the week of October 22, according to PIN data.

Large pickups enjoyed a similar updraft from loyalists, according to PIN data.
Deals made a difference. The average discount in the large SUV segment last month was $4,849, according to Edmunds.com data. A year ago, the average large SUV discount was $4,928 a vehicle -- but that was before the big sticker price cuts put through by GM and Ford. As in the past, SUV merchants effectively offered prospective buyers a hedge against another gasoline price shock in the form of a big upfront discount.

The big picture for the car business is that the U.S. economy appears to be downshifting, with risk at both the high and the low end. Detroit's Big Three are still sitting on hefty inventories of unsold vehicles.

The slump in home values -- which has not spared expensive properties in once-hot markets like Southern California -- has everyone in the car business nervous, even strong brands such as BMW. Sales of BMW brand vehicles fell 7% in October, as sales of the 3 series and 5 series car lines fell even though BMW's discounts averaged more than $4,000 per vehicle in October, according to Edmunds. Toyota's Lexus brand boosted sales by 2.9% and spent far less than BMW on rebates. But even Lexus was a mixed bag, as demand for Lexus SUVs (including the RX) fell 14%. While not confirming Edmunds's figures, BMW spokeswoman Martha McKinley says BMW's discounts were higher than normal last month because the company was clearing out 2006 models in advance of the arrival of new redesigned or upgraded models (such as the new X5).

As always, December is the month to watch in the luxury car business, when the big brands have year-end "events" to clear old models.

Jesse Toprak, an analyst with Edmunds.com, says he expects the overall value of auto maker discounts will rise 5% to 10% in November from October levels, as car makers try to clear out overstocked 2006 models. "And in December [discounts] will go up even more," he says.

Still, for people who want an SUV now may be the time to buy. December is the month when demand for four-wheel-drive vehicles is strongest, as residents of Northern states feel the first blasts of winter. That makes November the best time to shop for a four-wheel-drive SUV, Mr. Toprak says. If the snow's already on the road, he says,"you have less leverage in negotiation. Transaction prices for SUVs go up quite a bit from November to December."

 

ehhh..as long as its not Toyota getting another 25% Im happy with it..

 

The fact is that the US is known for our large roads and cheap gas, which by no accident makes the perfect environment for large trucks and SUVs. These conditions are really unique and quite different then those conditions in Japan and Europe which gave Ford and GM a huge homefield advantage during the truck/SUV boom.

When gas prices started skyrocketing in conjunction with more conjestion/traffic has started to make the US more like Europe and Japan and therefore smaller vehicles started to gain in popularity again. While US roads wont be shrinking in size anytime soon, but traffic/conjestion does a great job making our big American roads feel small and Japanese-like.

 

I just ordered a new full-sized SUV a couple of weeks ago which will replace my pick-up - gas cost wasn’t a really a consideration for me in my decision. However, I doubt that would be true for a lot of people should gas prices spike again.

How I intempret the article, aside from a dose of reality about last month's numbers, is that if any manufacturer relies too heavily on its SUV and/or Truck sales it may well be setting itself up for fall much like we’ve seen in the last 12-18 months…the domestics got through a lot of the 90’s by relying on truck and SUV sales; that’s not really bad but they seemed to almost abandon competing with the import in the car end of the market. Hopefully, they won’t repeat that mistake again.

To survive long-term, I think every manufacturer is going to have to strike a reasonable balance between its SUV/Truck sales and its car sales; relying too heavily on either segment is a recipe for disaster.

 

true...now just gotta find the trucks Honda keeps talking about??

 

Thanks for posting this -- I had a feeling the sales were up due to new model "bounce".

The big seller now is the new Honda CRV. My neighbor just bought one -- looks great in person.

 

It was a good month gas prices fell and people went out and bought some trucks and SUV's that they didn't when gas prices were high. There is no lesson to be learned here this isn't some market shift to or from SUV/Pickups all it was is a good month reported by brands whom sold lots more vehicles than they did last year.
We can set here and analyze every sale and it won't matter about long term goals. GM and Ford can't be second guessed for producing and developing new trucks that haven't sold well in 05-06. Why wouldn't GM produce a new GMT900 now that every brand including a beloved Nissan has joined the competition. If GM and Ford didn't update their trucks we would be sitting here wondering why they didn't as Toyota and even Honda ate their lunch.
So its plain to see that fuel effecient cars are the future and don't think the domestic brands are not in on this little secret but all in due time. GM is like an oil tanker it takes miles to change course. Look no further than our long waited 2009 Camaro. What if gas is $5 a gallon then and all V8 and sporty cars sales slump. I bet some people will sit back and say why didn't GM learn their lesson in the late 90's when the canceled the F-body in the first place!

October 2006 sales don't mean too much unless your at one of the brands who got a pleasant sales surprise. GM and Ford are not popping corks in Detoit and Dearborn but gladly accepting cash or check. Live on the fight another day.

 

The only way I'd get an SUV is if it got over 25mpg hwy. Saturn Outlook would probably be my first pick for a 7 pass. SUV.

I'm not worried about the Camaro. The V6 will be competitive with other 6 cars and an LS4 Camaro could probably get 30mpg. Lets not for get GMs 2 stage V8 hybrid setup that is going into the Tahoe. 320HP 5.3L hybrid Camaro getting 35mpg would be very cool.

 

I think you're forgetting how "relative" gas mileage actually is...the "bad" MPG we take totally for granted today was considered extreemly great mileage 20 years ago.

What I'm saying is that it isn't just a vehicle's particular gas mileage that's as much of an issue but its MPG compared to other, perhaps much more fuel effieicnt choices.

Anyway, MPG is not the only issue in the article; part of the point is the very real posibility of an overall slow-down in the economy (that always depresses vehicle sales) as well as the fact that people shouldn't get overly excited about last month's figures since they are being compared to one of the worst months ever (October 2005) for the domestic industry.

 

True, but people drive a lot more then they used too, so any increase in gas prices or stagnant MPG's has an exponential affect even though (historicially speaking) gas prices really arent that high at all.