Trends to Track in ’06

Coming off the third-best year on record, expect solid results again for U.S. light-vehicle sales in 2006, albeit a slight decline from last year. This despite the 7.5% gain in January caused by huge volumes of Big Three fleet sales to rental and commercial customers. Unless the economy sees robust growth of 4% or better in real gross domestic product most predictions range from 3.0% to 3.5% several

Coming off the third-best year on record, expect solid results again for U.S. light-vehicle sales in 2006, albeit a slight decline from last year.

This despite the 7.5% gain in January caused by huge volumes of Big Three fleet sales to rental and commercial customers.

Unless the economy sees robust growth of 4% or better in real gross domestic product — most predictions range from 3.0% to 3.5% — several factors will work against a volume gain.

First, cutbacks in capacity at General Motors Corp. and Ford Motor Co. will limit inventory levels during the typical bargain days of the summer and at the end of the year. There might be great deals but not as much excess stock as in recent years.

Additionally, attempts to pull back on incentives, plus long-term commitments by GM and Ford to reduce sales to rental outfits, will favor an overall industry decline.

Expected downturns for the Big Three and Nissan North America Inc. — with the caveat that a downturn at Chrysler Group would create a bump in the road — largely will be offset by gains at Toyota Motor Sales U.S.A. Inc.; American Honda Motor Co. Inc.; and several smaller volume players, such as Hyundai Motor America Inc. and BMW of North America LLC.

Thus, Ward's forecast sales of 16.8 million light vehicles for 2006, down 1.0% from 2005's 16.95 million but still one of the better years on record.

Outside of the broad-based trends, there are some significant dynamics to look at this year. One is a possible overreaction to a perceived move back to more fuel-efficient vehicles.

There is a definite shift from the traditional truck-based SUV to car-based cross/utility vehicles, and passenger cars made a small increase in market share in 2005 over 2004.

SUV market share dropped to a 9-year low of 14.3% in 2005, while CUVs climbed to 13.0% and likely will surpass SUVs this year.

Higher prices at the fuel pump might have given the trend a push in 2005, but the move from SUVs was happening anyway as wider availability of CUVs provide consumers more alternatives.

Also, passenger-car share of the light-vehicle market in 2005 increased from the prior year for the first time since 1981, rising to 45.2% from 44.5%. In 1981, it increased to 80.5% from 80.1%.

The general sense is consumers last year were flocking to more fuel-efficient, affordable cars. Some of them probably were. However, the major growth, based on Ward's segment groups, was in Large Cars, which basically are big sedans sold at near-luxury car prices.

Albeit small in volume, the Large Car Group sales increased 30.9% in 2005, with its 4.2% market share the highest since 4.3% in 1998.

By comparison, sales of small cars rose less than 1.0%, due to a 27.8% gain in the group's specialty segment, among them the Scion tC, Mini Cooper, Hyundai Tiburon and Chrysler PT Cruiser Convertible.

Surprisingly, not driving this small-car segment's gain were mainstream vehicles (i.e., the Chevrolet Cobalt, Ford Focus, Honda Civic and Toyota Corolla) poised to appeal to cost-conscious buyers who might have considered a truck or bigger car if gas prices had remained stable with previous years.

Furthermore, sales of Middle, or midsize cars, were relatively flat with 2004.

Sales of sedans built on rear-wheel-drive platforms in the Large and Luxury Car Groups also bolstered passenger-car sales, although such vehicles often do not have better gas mileage than light trucks.

Sales of the RWD sedans increased 10.5% in 2005. Market share of 5.3% grew from 4.8% in 2004, a notable uptick from 1999's 4.1%, when such vehicles last hit a trough.

Also worth noting, 10 years ago, sales of front-wheel-drive Large-Luxury cars outdid RWD by close to a 2:1 ratio. Last year, the ratio was nearly even with FWD cars at 906,832 units and RWD models at 893,559.

Toyota Motor Corp., Honda Motor Co. Ltd and Nissan Motor Co. Ltd. all are bringing new Lower Small, or subcompact, cars into the market this year. The Big Three also are talking about bringing new smaller cars, while other auto makers say they will be in the subcompact market sometime in the future.

The likely result will be a few winners, while the rest will be trying to unload unwanted products at little or no profit.

Another prediction: GM will make a killing in large SUVs. The auto maker's new GMT900 fullsize SUVs (Chevrolet Tahoe and Suburban, and Cadillac and GMC brethren) likely will carry incentives by the end of the year but will remain profit drivers for both dealers and GM.

Ford has dropped the Ford Excursion but adds larger versions of the Ford Expedition and Lincoln Navigator. Toyota and Nissan, although they might be making money with the Sequoia and Armada, respectively, have not secured reputations in big SUVs as they have in other segments. This is particularly true of Toyota.

Sales have spiraled downward for big SUVs, but a large part of that has been lack of fresh product among the big sellers in the segment.

Ford will make it interesting later this year with its redesigned Expedition and Navigator. But as with Toyota and Nissan, Ford has failed to penetrate the psychological hold GM's products have in the segment.

The dearth in future SUVs will be in the midsize models. Both Ford and GM have closed, or are closing, one plant each that builds midsize SUVs. And GM later this year will cut a shift at the lone plant still making Chevrolet TrailBlazers and GMC Envoys.

Meantime, Jeep may have found a formula for success in a dwindling SUV world. Built on the same platform as the sleeker Grand Cherokee, the 3-row Jeep Commander is designed to evoke the older, classic Jeeps but with modern technology and equipment.

The Commander could help Chrysler offset a decline in Grand Cherokee sales by pulling in core buyers who still want a truck-based vehicle by offering them two distinct midsize models.

Jeep vehicles still are doing well in sales. Seeing the future, the brand is branching out into the CUV market in what could be a major transitional move.

Come midyear, Jeep rolls out the new Compass followed by the companion Patriot. Solid market acceptance of the two small CUVs could offset sales losses in Jeep's SUV products from general market conditions, and keep the franchise solidified in the long run.

Quite possibly, the move could go one better and make Jeep one of the hottest brands for the next few years. The brand's timing also is good in that, in addition to the new Commander SUV, it has redesigns coming for the Wrangler this year and the Liberty in 2007.

Chrysler might not be able to stop Toyota from overtaking it in sales, but even if only some of its impending products are hits, there is an opportunity to continue market gains.

Chrysler, meanwhile, is rolling out the Neon's replacement, the Dodge Caliber, and next year will introduce redesigned minivans and midsize cars. The auto maker will have to offset expected continued declines for the Dodge Durango SUV and Ram fullsize pickup — at least until their redesigns come later in the decade.

What can be said about Toyota? Sales rise even in years when it does not have major new products to push.

Next year, Toyota dealers get a third-generation Tundra fullsize pickup, much larger and improved over its predecessor. In spite of the first two generations being considered weak copies of the competition, they generally met and meet sales targets.

And with increased production capacity on tap, the new Tundra likely will become a 250,000-unit annual seller from the current 100,000 yearly sales.

One final prediction: The all-new Mercedes GL will be the start of a new segment inside the CUV group. Although going head-to-head with the Cadillac Escalade and Lincoln Navigator Large-Luxury SUVs, a unitized body and other less truck-like features will make this vehicle the first Large-Luxury CUV.

Its success could determine the future engineering direction of Cadillac and Lincoln SUVs.

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

% U.S. Light-Vehicle Market Share of Front-and Rear-Wheel-Drive Large and Luxury Sedans
(Split by Front- and Rear-Wheel-Drive Versions)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Front-drive 7.9 7.4 7.4 7.3 7.0 6.9 6.1 5.9 5.3 4.9 5.4
Rear-drive 4.4 4.1 4.1 4.1 4.1 4.2 4.2 4.3 4.4 4.8 5.3
Total 12.3 11.4 11.4 11.4 11.1 11.1 10.3 10.2 9.8 9.7 10.6
Note: Market share split based on sales of vehicles built from front- and rear-wheel-drive platforms. Thus, sales of some vehicles with optional all-wheel-drive are included. Source: WardsAuto.com.
% U.S. Light-Vehicle Market Share by Selected Segmentation
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Small Sedan 14.9 14.5 13.6 12.1 12.3 14.3 14.3 13.9 13.4 12.7 12.5
Middle Sedan 25.0 25.1 24.4 24.0 23.4 20.6 19.5 19.3 18.3 17.9 17.8
Large Sedan 5.3 4.8 4.5 4.3 3.9 3.6 3.2 3.0 2.9 3.3 4.2
Luxury Sedan 7.1 6.6 6.9 7.2 7.2 7.5 7.1 7.3 6.9 6.5 6.4
Specialty/Sport Car 6.4 5.5 5.2 4.9 4.7 5.0 5.1 4.7 4.3 4.2 4.2
Cross/Utility/Vehicle 0.0 0.4 1.0 1.6 1.8 3.1 5.9 7.4 10.0 11.5 13.0
Sport/Utility/Vehicle 11.9 13.8 15.1 16.4 17.3 17.2 17.3 17.7 17.2 16.5 14.3
Minivans 8.5 8.1 8.1 7.9 7.9 7.9 6.9 6.7 6.5 6.6 6.5
Large Van 2.7 2.4 2.5 2.5 2.5 2.4 2.0 2.0 1.9 2.0 2.1
Pickup/Comm. Chassis 18.3 18.9 18.5 19.3 19.1 18.4 18.7 18.0 18.6 18.8 18.8
Total 100 100 100 100 100 100 100 100 100 100 100
Note: Sedans are cars sold primarily in 4-door body styles, but include vehicles that also offer 2- or 5-door models. Source: WardsAuto.com.
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