Desperate to Downsize: American Consumers Dash to Cheaper Fuel Sippers
By Dale Buss on June 17,2008
Edmonds AutoObserver
Consumers' quick, massive shift toward smaller vehicles has bludgeoned the auto industry. But Americans have only begun to show automakers how anxious they are to make transitions to more fuel-efficient transportation.
A desperation to downsize is taking hold across the land, fed not only by skyrocketing fuel costs but also by the rise in general economic pressures, most notably the mortgage mess. And this surge is likely only to intensify, even if gasoline prices somehow moderate.
"Consumers want to abandon their less-fuel-efficient vehicles for smaller cars, and that's illustrated by all sorts of trends," said David Tompkins, executive director of industry solutions for Edmunds.com, parent of AutoObserver. "But what's really coming into play is the urgency they feel to do so sooner rather than later. This is becoming a huge wild card for the industry."
The increasing urgency is becoming apparent in a number of ways, both in new-vehicle retail-sales patterns as well as in all sorts of significant tangents.
Consumers are buying smaller vehicles and trading in larger ones at previously unseen rates, of course. They're also growing more inclined toward used cars. Americans are even popping more often for tiny and sometimes two-wheeled vehicles.
More than ever, they're also rushing to escape from leases for SUVs and trucks.
And sadly, more Americans are deciding that the only way to get out from under their automotive burdens is to torch their vehicles and make fraudulent insurance claims.
"Rather than stretching or gradually making a change, consumers are making a snap change here - they're shifting all at once," said Lincoln Merrihew, senior vice president of TNS Automotive, an industry market-research firm in New York.
"It's like a school of fish who change all at once. And the problem for the car industry is that it isn't designed that way. It's hard for [automakers] to respond to that."
As automakers try to gear up their own huge adjustments to this sea change, at least three trends in consumer sentiment and activity already seem emergent:
· The segment shift toward smaller, lighter, more fuel-efficient vehicles - and away from full-size pickup trucks and SUVs - is only accelerating.
· The battle over SUVs as appropriate transportation for responsible Americans is over. And SUVs lost.
· The watershed in Americans' thinking about vehicle size and efficiency is spilling over into other areas of economic life and lifestyle.
Flight From Fuel Hogs
In the biggest - and, still by far the most important - window into these trends, purchase and consideration behavior continues to head dramatically toward more fuel-efficient vehicles.
As Chevrolet intones in its latest TV advertisements touting the division's lineup of six vehicles that get 30 mpg or more on the highway, consumers want automakers to "tell me something good." And many of them are trolling online automotive sites such as Edmunds.com as never before seeking advice from others on how to proceed.
"I have enjoyed everything about my 04 Durango w/Hemi except the high monthly payment and the ridiculous gas guzzling," Lynnette Lyons Berman of San Antonio, an Edmunds.com Forums visitor, recently wrote. "I think I have convinced hubby that a lower-priced more fuel-efficient vehicle is a wise choice for our family of five at this point. However, I find myself going in circles trying to decide what to buy."
In a broad reflection of such impulses, in just the last two months, according to Edmunds.com's analysis, consumers have shifted hugely away from same-segment trades and purchases and toward a pattern of trading in larger and less fuel-efficient vehicles for those that will cost them less at the gas pump going forward. The number of same-segment trades for small and midsize cars in April and May, combined, was 17 percent fewer than in January-February, Edmunds.com found, while the number of trucks and SUVs offered in trade was 35 percent higher.
Consumers buying small cars are trading in significantly more small and midsize SUVs than they did during January and February, said Dr. Tompkins of Edmunds.com. Same-segment trades declined by 19 percent in April-May, he said, while trade-ins of midsize SUVs rose 45 percent; trade-ins of small SUVs increased 37 percent; trade-ins of large and luxury SUVs averaged about 33 percent higher; swaps of large trucks were 25 percent more in April-May; and 15 percent more compact trucks were exchanged.
Edmunds.com analysis also showed that customers buying midsize cars are dumping large SUVs at a rate 83 percent higher than just three months ago. In April-May, same-segment trade-ins of midsize cars declined 14 percent compared with January-February. After large SUVs, the biggest segment increase in trade-ins for midsize cars -size cars was large trucks and luxury SUVs, both at a 39 percent gain. Midsize SUVs were traded in 32 percent more often, compact trucks 26 percent more, and small SUVs 22 percent more.
Moreover, Tompkins noted, "Consumers buying small and midsize cars are trading in newer vehicles." In just three months, he said, there has been an 11 percent increase in small-car buyers trading in vehicles that are less than four years old. For midsize-car buyers, 5 percent more are trading in a newer vehicle.
Toyota Prius sales -- which were supply-constrained in May after many months of spectacular growth -- nevertheless continue to be a telling individual barometer of the growing mileage-consciousness of American consumers. In April-May, there were 27 percent fewer consumers trading in a small car for a Prius, compared with January-February, and 14 percent fewer swapping a midsize car. But Americans traded in luxury SUVs at a 56-percent higher clip, large cars 52 percent more often, and large SUVs 46 percent more often.
Used cars are becoming a more common alternative for many Americans. "People are wanting to get rid of larger vehicles and get something smaller," said Curtis Kroeker, chief executive officer of eBay Motors, one of the nation's largest used-car markets.
"Meantime, these are tough economic times, so people aren't feeling flush with cash. That leads a lot of people to the used-car market who might otherwise buy a new car."
Naturally, the smallest vehicles available via eBay Motors are becoming some of the most popular. Used Honda Civics are one. But while General Motors has stopped selling new Chevrolet Geos, and Ford has stopped selling Ford Escorts, Kroeker said that there are as many as 40 bids on each used Escort and Geo that shows up now, a huge leap over a couple of years ago.
"Those cars have gone from being more in line with average [demand] to being some of the highest-demand vehicles on the site," he said.
Auto dealers nationwide also are experiencing strong growth in sales of their Certified Pre-Owned Vehicles, which give consumers a price break but also the reassurance of safety and soundness that come with the factory guarantees. April sales of these vehicles hit the second-highest level on record, at nearly 157,000 units, according to Autodata Corp.
Certified used vehicles are concentrated in luxury brands, and some upscale marques have been experiencing the biggest sales jumps. In May, for example, Audi's certified pre-owned sales rose to nearly 3,400 units, an increase of nearly 43 percent over a year earlier. And Mercedes-Benz sales rose 32 percent in May, to more than 6,000 vehicles, as well as by more than 24 percent year-to-date compared with 2007.
Of course, consumers also are buying more hybrids than ever, although the hybrid market is spottier than one might expect. Prius remains supply-constrained at least for now. And GM has been having trouble getting the new hybrid versions of its behemoth Chevrolet Tahoe and GMC Yukon out of the gate, so it has increased incentives on the vehicles.
Small is Beautiful
In the meantime, more and more Americans are investigating other fuel-efficient alternatives. In an introduction long anticiapted by owner and importer Mercedes-Benz, U.S. sales of tiny Smart cars began in January and reached nearly 2,700 units in May. About 30,000 people have paid deposits of $99 apiece for "reservations" to purchase a Smart ForTtwo at sticker prices ranging from $11,590 to $16,590.
And while Smart USA declined to release its own sales analysis or projections, spokesman Ken Kettenbeil said that "there has been an uptick in reservations attributed to gas prices." He noted that a solid endorsement of the front and side crashworthiness of Smartfortwo by the Insurance Institute for Highway Safety, last month, also has boosted consumer interest.
And while U.S. consumers continue to wait for the next major breakthroughs in electric powertrains, such as the Chevrolet Volt plug-in hybrid scheduled to debut next year, sales of the few available all-electric cars have been ticking up as well.
Sales of Global Electric Motorcars (GEM) vehicles have increased from 10 percent to 25 percent over the last year - spiking over the past two months, said the Fargo, N.D.-based unit of Chrysler. The company also has experienced a ten-fold increase in consumer inquiries about GEMs. About 36,000 of the Neighborhood Electric Vehicles -- which have short ranges and are intended only for light use -- already are on the road.
Fuel-price increases have been so dramatic that more Americans are drastically re-evaluating their vehicle-ownership requirements in light of their needs for driving to work, school, for recreation and errands. That's why Marcia Goodrich decided to plop down $2,300 for a Yamaha C3 scooter last month.
"I thought it was becoming goofy to drag around two tons of steel just to run up the hill to get a bag of cat food at the supermarket," said Goodrich, a writer for the communications staff of Michigan Technological University, in Houghton, Mich. "Plus, I work at a university that talks about the importance of preserving the environment. Both of those things had been preying on my mind."
So Goodrich now leaves her 1999 Buick LeSabre in the garage far more often - though it gets about 27 mpg on the highway - and hops onto her scooter, which eats up 60 mpg. It's got a one-gallon gasoline tank and enough enclosed storage to tote a bag of groceries, plenty of each kind of capacity for Goodrich as she commutes to work and just tools around the town of 12,000 people in Michigan's Upper Peninsula.
"I've thought about this for a long time," says the 56-year-old. "But I didn't have the financial motivation until now."
Escape Hatches
A desperation to get out from under increasingly onerous responsibilities for gas-hogging large SUVs and pickup trucks also is driving more and more Americans to try to get out of their leases. Of consumers registering to swap leases on Leasetrader.com, 24 percent more than a year ago are motivated by a desire to downsize, said the Miami-based company, which surveys each registrant about such factors.
"It used to be, 'I want a new model, I want something else,'" said Sergio Stiberman, Leasetrader.com's chief executive officer. "Now it's become a need to downsize."
Desire to downsize is the highest in the four years that Leasetrader.com has been tracking customer motives, Stiberman said. The company now is trying to get a handle on how many would-be lease swappers also are motivated by general economic distress brought on by falling house values, employment pressures and other factors.
Financial desperation typically is the motive for car owners who really push the envelope - by destroying their vehicles, pretending they were stolen and burned by the thief, and then attempting to defraud their insurance companies into paying up. There are no statistics available breaking these crimes down by vehicle segment, but "we're seeing an uptick in news reports about SUVs being torched," said James Quiggle, director of communications for the Coalition Against Insurance Fraud, in Washington, D.C.
"These vehicles have outlived their usefulness as luxury items and are too expensive to maintain, so more people are looking for a quick way out," Quiggle added. "They're trying to get out from under burdensome payments and free up that money to either pay off debt or buy a less expensive car."
A Discussion in Wisconsin
Clearly, the image of the large American SUV has come in for unprecedented battering lately. The vehicles, of course, increasingly are perceived as badges of excessive consumption at a time of rising overall economic hardship and as senselessly fuel-inefficient monsters as gasoline prices are spiking - and concerns about climate change are mounting.
It wasn't too long ago that SUV ownership remained firmly in the mainstream as legions of tree-huggers assailed it. But no more. The standoff has ended; the tipping point has been passed; the battle has been won by the anti-SUV forces -- and owning and driving one of the behemoths has become not just a reason for social stigma but for outright opprobrium. Even GM is trying to get away from SUVs.
Illustrative of the angst this is causing consumers is a string of responses to a recent question posed online by the Milwaukee Journal-Sentinel. "What to do with your SUV?" the newspaper asked online readers early this month.
It was right about the time that GM was announcing the closure of an SUV-assembly plant in Janesville, in southern Wisconsin. But there were lots of feelings of justifiable contempt of SUVs expressed by green-leaning consumers who were happy to see SUV owners finally get some sort of comeuppance. And many recent car buyers told of their concessions to fuel economy in their transactions.
"Retribution is occurring," said one typical commenter, a Milwaukeean named Jonathan. "I knew 10 years ago that this was a trend [that] would end badly. I tried not to get upset with so many single drivers of massive SUVs, but it was difficult at times."
Nevertheless, many participants in the newspaper's chat remained unapologetic and even defiant about continued plans to drive and own an SUV. Tricia Dooley, of Jackson, Wis., noted that "the only vehicle that has enough power to pull [the family travel trailer] is our SUV, so we will be keeping it. In between camping trips, though, we will be driving less."
Another, Tom Gaumond of Milwaukee, asked: "Is there really a choice for people who have families? I need to haul kids, pets and all of their related material and a small sedan doesn't cut it. I am driving my SUV regardless of gas prices."
Different This Time?
Given the dramatic fall-off in trade-in values of large SUVs and pickup trucks, there also are increasing economic incentives for keeping them rather than paying rising prices for new, smaller, more fuel-efficient vehicles. Driving a large SUV for another year almost certainly will cost a consumer less than the financial hit he or she would sustain from trading it in right now even for a small car.
If a consumer has owned a vehicle for three years or less and hasn't paid off the loan, "it often doesn't pay to downsize," said Consumer Reports, "even if the new car's fuel economy is much better." The magazine recommended that consumers hold onto their cars at least four or five years, typically, to minimize the financial impact of depreciation and finance charges.
Indeed, Merrihew, the consultant with TNS Automotive, purported that American consumers and the auto industry face considerable danger over the long term from over-reacting to gasoline-price increases in the short term. "This is the same industry that said, in 1973, that [higher gas prices] were a permanent change, and big cars are done. Then, suddenly, SUVs were the new big cars."
In any event, there clearly is an epochal feel in the air for many Americans, this time around. Maybe it has to do with the combination of climate-change concern and shockingly high gasoline prices. More businesses and local governments are cutting back to four-day work weeks with employees working longer hours. And even mass transit seems poised for some sort of comeback.
"Why has everyone become so environmentally sensitive now?" asked Steve Hoch, of Whitefish Bay, Wis., on the Journal-Sentinel chat. Answering his own question, he said that it's because consumers "really just ... do not want to pay $4 for gas."
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com