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Smaller Incentives, Fewer Sales

This year will be another strong one for auto sales by historical standards with a lot of new product for buyers to choose from. The year also will further confirm that the crossover vehicle is arguably developing into its own vehicle type, and is not just a hot-growth segment. For sellers, competition will be tougher and it looks like auto makers mainly the Big Three manufacturers will not be as

This year will be another strong one for auto sales by historical standards with a lot of new product for buyers to choose from.

The year also will further confirm that the crossover vehicle is arguably developing into its own vehicle type, and is not just a hot-growth segment.

For sellers, competition will be tougher and it looks like auto makers — mainly the Big Three manufacturers — will not be as generous as in the past with market incentives.

General Motors Corp., the market leader, appears serious about using lower production, rather than relying on bigger incentives as a way to clamp down on excess inventories. That will also relieve incentive pressure on other manufacturers.

The economy is expected to grow at a solid rate but not enough to spur new growth in auto sales without the huge rebates and low interest financing that have dominated the last three years.

That should be a market share boon for companies with newer and exciting products — DaimlerChrysler AG's Chrysler Group for example — or auto makers that have an already built-in image of quality and value such as Toyota Motor Corp. (although it is more than just image for them).

If the big auto makers like GM and Ford Motor Co. do indeed show restraint on incentives in 2005, Ward's expects the negative impact on industry volume to more than offset the positives and result in a small decline in sales this year from 2004.

Ward's forecasts light vehicle sales to total 16.75 million units in 2005, compared to 16.86 million in 2004.

The year should be a little more evened out on a seasonally adjusted basis than what the market has been used to over the last three years.

Basically as a result of aggressive production schedules building up stockpiles, sales in the years from 2002 through 2004 have been dominated with big upward spikes in the third quarter to get rid of old model-year vehicles, then a surge at the end of the year to shore up final numbers, and also to alleviate burgeoning inventory.

That trend is likely to occur again this year because inventory is expected to still be on the high side heading into the summer months. It's just that it won't be as pronounced as in recent years as inventory levels start to come under control. In fact, by the end of March industry inventory should be below year-ago levels for the first time since September 2002.

Crossover, or cross/utility vehicles, will continue to suck market share away from midsize cars and luxury cars, sport/utility vehicles and minivans. Indeed, of the 20 all-new entries hitting the market this year, seven will be CUVs, plus one makeover — the Mercedes M-Class — is a redesign from a truck-like SUV.

The segment continues to evolve as well as grow. Including minivans in the segment as the large-size extension of the CUVs, crossovers could be seen as a third major light-vehicle type with cars and body-on-frame trucks — SUVs and pickups — the other two.

Most CUVs could be seen as filling the void between five-door cars, or what used to be called station wagons, at the small-size end and minivans as the large vehicles in the third class.

And they're also going more upscale.

Besides the new M-Class, Mercedes is adding the R-Class in 2005. BMW adds the X7, its third CUV. The new Subaru B9 Tribeca is expected to be priced in the $35,000-$40,000 range, making it a luxury vehicle. (Not this year, but it's likely that soon thereafter truck stalwart GMC will add a CUV to its stable.)

Minivans are losing some share to the smaller CUVs. However, intense competition between Chrysler, Honda, Toyota and Nissan should shore up the segment.

GM's Buick and Saturn brands will have their minivan offerings on sale for their first full year, but might only increase the competition inside GM rather than with brands outside the company.

Midsize SUVs will continue to suffer as buyers find more offerings on the CUV side. The slowdown will be exacerbated by a lack of new products in the segment this year.

What's on tap for the SUV segment in 2005 that is new, or a redesign, are not major volume pushers. Some noticeable volume impact could come from the new Jeep Commander, which essentially is an extended Grand Cherokee, and possibly the redesigned Nissan Xterra.

A lot of action will be going in luxury sedans, including the only part of the segment that has not been in decline, the lower luxury, or entry segment. Redesigns to the BMW 3 Series and Lexus IS 300 will compete with two new entries in the Audi A3 and Lincoln Zephyr.

A fresher mix could reinvigorate the lower luxury segment for 2005. It saw its first market share decline since 1993 in 2004. But the squeeze from more upscale CUVs could eventually see this segment go into a long-term decline just like has already occurred in the midsize and upper luxury car segments.

Even with higher prices at the fuel pump, bigger continues to be better in the U.S. light-vehicle market.

Large pickups took 14.8% of the market in 2004, compared to 13.2% just two years earlier. Although share for all SUVs decline, share for the large and large/luxury SUVs together stayed flat at 6.2%.

Large sedans, led by the Chrysler 300, made a mild reversal of market share in 2004, and could do better again in 2005 with help from the Buick Lucerne, which comes later in the year. Inside the CUV segment, while midsize and luxury offerings were ticking, market penetration of small CUVs actual declined from 1.7% in 2003 to 1.5%.

On the whole in 2005, light trucks, including CUVs, will continue to sap share away from cars. The CUV segment will be the only segment to show strong market share gains over 2004. Enough so, that most segments will actually decline in share.

New and good products will be even more important for dealer showroom turnover than in recent history as manufacturers back off incentives and the amount of competition continues to grow.

Haig Stoddard is manager of industry analysis for Ward's Communications.

New Vehicles and Major Upgrades Coming to U.S. Products in 2005

Cross/utility Vehicles

BMW X7 (new)
Chevrolet HHR (new)
Kia Sportage (new)
Lexus RX 400H (new)
Mercedes M Class Mercedes R Class (new)
Pontiac Torrent (new)
Subaru B9 Tribeca (new)
Suzuki Grand Vitara

Luxury Sedans/Wagons

Audi A3 (new)
BMW 3 Series
Cadillac DTS (replaces DeVille)
Infiniti M Series
Lexus GS
Lexus IS 300
Lexus LS 430
Lincoln Zephyr (new)
Mercedes S Class

Midsize Cars

Acura RSX
Chevrolet Impala
Ford Fusion (new)
Hyundai Sonata
Hyundai TG (replaces XG 350)
Kia Optima
Mercury Milan (replaces Sable)
Volkswagen Jetta
Volkswagen Passat

Sport/Utility Vehicles

Hummer H1
Hummer Hummer H3 (new)
Jeep Commander (new)
Nissan Xterra
Range Rover Sport (new)
Saab 9-7X (new)

Small Cars

Honda Civic
Hyundai Accent
Kia Rio
Mitsubishi Lancer
Toyota ECHO

Specialty Cars

Chevrolet Monte Carlo
Mazda Miata
Mitsubishi Eclipse
Pontiac Solstice (new)

Large Sedans

Buick Lucerne (replaces LeSabre)
Dodge Charger (new)
Toyota Avalon

Small Pickups

Honda Ridgeline (new)
Isuzu i-Series (new)
Mitsubishi Raider (new)

Large Pickups

Lincoln Mark LT (new)


Kia Sedona


U.S. Light Vehicle Sales: Calendar Year By Selected Segmentation
(By Volume, Market Share and Segment Best Seller)
Segment 2002 2003 2004
Lower Small Sedans 167,006 1.0 Hyundai Accent 129,715 0.8 Hyundai Accent 142,317 0.8 Chevrolet Aveo
Upper Small Sedans 2,178,218 13.0 Honda Civic 2,094,251 12.6 Honda Civic 2,006,741 11.9 Honda Civic
Total Small Sedans 2,345,224 13.9 Honda Civic 2,223,966 13.4 Honda Civic 2,149,058 12.7 Honda Civic
Lower Middle Sedans 622,832 3.7 Chevrolet Malibu 677,928 4.1 Chevrolet Malibu 658,379 3.9 Chevrolet Malibu
Upper Middle Sedans 2,599,981 15.5 Toyota Camry 2,349,638 14.1 Toyota Camry 2,302,530 13.7 Toyota Camry
Total Middle Sedans 3,222,813 19.2 Toyota Camry 3,027,566 18.2 Toyota Camry 2,960,909 17.6 Toyota Camry
Large Sedans 496,314 3.0 Buick LeSabre 481,600 2.9 Buick LeSabre 548,336 3.3 Buick LeSabre
Lower Luxury Sedans 713,933 4.2 BMW 3 Series 714,682 4.3 BMW 3 Series 697,929 4.1 BMW 3 Series
Middle Luxury Sedans 379,606 2.3 Cadillac Deville 346,143 2.1 Cadillac Deville 304,935 1.8 Cadillac Deville
Upper Luxury Sedans 129,265 0.8 Lexus LS 430 84,283 0.5 Lexus LS 430 89,293 0.5 Lexus LS 430
Total Luxury Sedans 1,222,804 7.3 BMW 3 Series 1,145,108 6.9 BMW 3 Series 1,092,157 6.5 BMW 3 Series
Sports Cars 112,834 0.7 Chevrolet Corvette 110,122 0.7 Chevrolet Corvette 118,780 0.7 Chevrolet Corvette
Specialty Cars 703,240 4.2 Ford Mustang 622,119 3.7 Ford Mustang 636,692 3.8 Ford Mustang
Small CUVs 237,164 1.4 Chrysler PT Cruiser 282,529 1.7 Chrysler PT Cruiser 255,378 1.5 Chrysler PT Cruiser
Middle CUVs 800,911 4.8 Honda CRV 1,019,279 6.1 Ford Escape 1,228,835 7.3 Ford Escape
Middle Luxury CUVs 199,545 1.2 Lexus RX 300 367,770 2.2 Lexus RX 330 461,957 2.7 Lexus RX 330
Total Cross/Utilities 1,237,620 7.4 Honda CRV 1,669,578 10.0 Ford Escape 1,946,170 11.5 Ford Escape
Small SUV 164,092 1.0 Jeep Wrangler 124,169 0.7 Jeep Wrangler 100,904 0.6 Jeep Wrangler
Middle SUV 1,710,310 10.2 Ford Explorer 1,572,051 9.4 Ford Explorer 1,514,241 9.0 Ford Explorer
Middle Luxury SUV 117,972 0.7 Mercedes M-Class 136,990 0.8 Lexus GX 470 134,064 0.8 Lexus GX 470
Large SUV 874,475 5.2 Chevrolet Tahoe 880,968 5.3 Chevrolet Tahoe 870,587 5.2 Chevrolet Tahoe
Large Luxury SUV 107,617 0.6 Cadillac Escalade 150,438 0.9 Lincoln Navigator 161,661 1.0 Cadillac Escalade
Total Sport/Utilities 2,974,466 17.7 Ford Explorer 2,864,616 17.2 Ford Explorer 2,781,457 16.5 Ford Explorer
Minivans 1,134,801 6.7 Dodge Caravan 1,074,681 6.5 Dodge Caravan 1,110,817 6.6 Dodge Caravan
Large Vans 335,485 2.0 Ford Econoline 323,478 1.9 Ford Econoline 344,693 2.0 Ford Econoline
Total Vans 1,470,286 8.7 Dodge Caravan 1,398,159 8.4 Dodge Caravan 1,455,510 8.6 Dodge Caravan
Small Pickups 798,864 4.8 Ford Ranger 743,656 4.5 Ford Ranger 670,787 4.0 Ford Ranger
Large Pickups 2,224,422 13.2 Ford F Series 2,344,855 14.1 Ford F Series 2,498,706 14.8 Ford F Series
Total Pickups 3,023,286 18.0 Ford F Series 3,088,511 18.6 Ford F Series 3,169,493 18.8 Ford F Series
Class 3 chassis 7,481 0.0 Isuzu 7,708 0.0 Isuzu 8,358 0.0 Isuzu
Grand Total 16,816,368 100.0 Ford F Series 16,639,053 100.0 Ford F Series 16,866,920 100.0 Ford F Series
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