Sales of trucks up despite fuel price

[Charles Brown <cbrown@xxxxxxxxxxxxxxxxx>]

Do sales incentives amount to price reductions ?

Charles
^^^^^^^^

Sales of trucks up despite fuel price



Carmakers boosted incentives in May


June 3, 2004

BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER

Despite rising gas prices that topped $2 a gallon nationwide, the automotive
industry on Wednesday reported that sales of new vehicles -- especially
light trucks -- were surprisingly strong last month.

The news challenged a growing belief, being fueled by some surveys and media
reports, that customers were ditching their pickups, SUVs and vans for
hybrids and small cars.

Industry sales were up 3.4 percent in May compared with the same month a
year ago. More than 1.63 million new cars and trucks were sold. Sales of
light trucks were up 4.7 percent, while sales of cars, which are generally
more fuel-efficient, were up a more modest 1.9 percent.

In the face of the rising gas prices last month, automakers boosted
incentives substantially -- especially cash-back rebates and low-interest
financing on trucks -- to keep demand strong.

The results led Paul Taylor, chief economist for the National Automobile
Dealers Association, to conclude: "Consumers are convinced, as is NADA, that
this is a spike in gasoline prices, not a long-term major escalation."

Gas prices are expected to peak this month.

Recently, some analysts and media reports have pointed to growing sales of
gas-electric hybrid vehicles as proof that a more socially conscious
auto-buying trend is under way.

But May's sales results challenge that notion and suggest that while some
people might adjust their purchases slightly by, say, moving from bigger
SUVs, like the Ford Expedition, to smaller ones, such as the Ford Escape,
customers are not changing their behavior in any significant way overall.

Automakers and analysts repeatedly challenged conventional wisdom on the
issue:

*       "Honestly, we have been listening closely, and we are not hearing a
lot of vibration on the fuel issue," said Gary Dilts, senior vice president
of sales at the DaimlerChrysler AG's Chrysler Group. "We're seeing a lot of
it in the media, but we're not seeing it in the showroom."

*       "We really don't see a shift occurring," said Paul Ballew, General
Motors Corp.'s executive director of global market and industry analysis.
"We expect full-sized utilities to hold their own this year; so far they
have. We expect large pickups to grow; so far they have. We expect trucks to
outperform cars; so far they have. . . . At the end of the day, we do have
to look at the actual behavior."

*       "Real statistical evidence of any interest in fuel economy on the
part of American car buyers can so far be found only by those willing to
torture the data," David Healy, an auto analyst for Burnham Investment
Research, wrote in a report late last week.

*       "We have not seen a major shift to smaller, more fuel-efficient
cars," Jim Press, Toyota Motor Corp.'s executive vice president and chief
operating officer, said in a press release. "The light-truck segment is
still showing its strength."

Toyota's remark was especially interesting because the Toyota Prius and the
Honda Civic Hybrid are enjoying a robust growth in sales. Sales of the
Prius, for example, jumped 221 percent, and 3,962 of the small gas-electric
cars were sold. Production of the Prius was raised to 10,000 units a month
from 7,500, Bloomberg News reported.

But these results don't necessarily mean that a trend toward fuel economy is
underfoot, various automotive analysts noted. Many of those buyers might
have gravitated to small, non-hybrid fuel-efficient vehicles, like the
Toyota Echo and regular Honda Civic, anyway, and gas prices are still
relatively low when the growth in household incomes and other economic data
are considered, they noted.

Despite the industry's strong overall performance, not all of Detroit's
automakers enjoyed the benefits of the high demand.

While GM sales were up 2.6 percent compared to the same year-ago period,
DaimlerChrysler AG's were up only slightly, 0.7 percent, and Ford Motor
Co.'s sales were down 3.3 percent, with all of its divisions reporting a
decline.

At Ford, sales were down 25 percent at Land Rover, 22 percent at Lincoln, 10
percent at Volvo, 8 percent at Jaguar, 5 percent at Mercury and 1 percent at
Ford. While sales of the new Ford F-Series pickup remained strong, up 4
percent for the month, truck sales were down 2.6 percent at Ford. Car sales
were down 4.8 percent.

Ford's new Freestar minivan, which replaced the aging Windstar minivan in
late 2003, played some part in that. Ford sold 10,705 Freestars in May --
fewer than the 11,676 Windstars sold last May. Even when including the
company's new Mercury Monterey minivan, the company sold 197 more minivans
than it did last year. Industrywide, minivan sales were up 12 percent,
Autodata Corp., of Woodcliff Lake, N.J., reported.

Most automakers ramped up incentives substantially in May. CNW Marketing
Research Inc., in Bandon, Ore., one of several independent companies that
evaluate incentive spending, reported that industry incentives averaged
$3,784 per vehicle last month.

That's up $193 from April and up $476 from May 2003.

While GM's Truckfest incentive program has ended, the company is offering a
new program in which existing GM owners can qualify for up to $5,000 in cash
on most 2003 and 2004 models through Aug. 2, the Associated Press reported.
Ford, meanwhile, raised the customer cash available on Freestar minivans by
$1,000 to $5,000 for buyers who finance through Ford Credit.

Contact SARAH A. WEBSTER at 313-222-5394.