Car sales rise despite Washington budget battle

Joseph Szczesny , The Detroit Bureau – 1 day

For the last several years, automotive sales have helped carry the struggling economy. This time, however, the recovering housing market appears to be giving a boost to the auto industry.

February sales showed unexpectedly solid momentum, automakers are reporting today, despite concerns about recent fuel price spikes and the potential damage that the ongoing budget battle in Washington could cause to a still-fragile economy.

As in recent months, cheap financing and pent-up demand helped propel the car market, but industry analysts say other factors helped drive a roughly 7% increase for February in the sales of new cars, trucks and crossovers.

“The housing sector has now joined auto sales in propelling the U.S. economy forward,” said Kurt McNeil, vice president of U.S. sales operations for General Motors, which reported a 7% increase, year-over-year. “More importantly, the recovery in new home construction is reinforcing the underlying improvement in auto buying conditions, especially for pickups.”

Domestic makers GM, Ford Motor Co. and Chrysler LLC all reported solid gains for February -- the smallest of the Detroit Big Three reporting its best February in five years – while Volkswagen and Toyota also reported modest sales gains.

Though the overall market was up, the performance varied widely from one maker to another. Two key Japanese automakers, Nissan and Honda, posted small sales declines, as did BMW, while rival Mercedes-Benz reported a 22% sales increase.

“Light vehicle sales have now been running at a mid-15 million unit annual rate since November,” noted GM’s McNeil. And February appears to have maintained that pace, with several automakers indicating they may up their forecasts for the rest of the year – and consequently alter their own production plans.

The strong performance in the automotive market counters reports of consumer spending cutbacks on lower-priced goods, a potential trend analysts are ascribing to a variety of factors including higher Social Security taxes, the recent ending of a federal payroll tax break and higher fuel prices this winter.

But, “I think these little speed bumps aren’t enough to slow down the momentum right now,” said analyst Jeff Schuster, of LMC Automotive.

Indeed, consumers seemed to shrug off the turmoil in Washington D.C. over the budget, and consumer confidence, a critical element in sales of new vehicles, edged upwards in February, according to recent surveys.

Detroit’s Big Three were looking for solid gains last month, especially GM and Ford, both of which lost market share in 2012. Ford sales grew 9% as the maker posted its best February in six years – with cars up 6%, utility vehicles up 21% and trucks like the big F-Series pickups gaining 4%.

“As more new vehicle buyers continue returning to the marketplace, our fresh new product portfolio of fuel-efficient vehicles is winning over customers,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “People are buying our all-new Fusion and Escape in record numbers, thanks to strong fuel economy and innovative new technologies.”

Despite early forecasts that the company's sales were poised to drop for the month, Chrysler managed a 4% increase compared with sales in February 2012 as the group posted its best February sales since 2008. The maker’s Dodge, Ram Truck and Fiat brands each posted year-over-year gains. The Dodge brand’s 30% increase was the largest sales gain of any Chrysler Group brand in February.

Chrysler CEO Sergio Marchionne last month had cautioned pointed out that first-quarter volumes will likely be off from the same period in 2012 due to the company’s numerous product launches. These include the 2014 Jeep Grand Cherokee, Jeep Compass and heavy-duty Ram. The Jeep plant in Toledo, Ohio also cut production as it ended the run of the old Liberty model to convert over for the launch of the all-new Jeep Cherokee.

“In spite of a cautious ramp up of some of our most popular products which limited inventory last month, we still managed to record our strongest February sales in five years and our 35th-consecutive month of year-over-year sales growth,” said Reid Bigland, Chrysler’s director of U.S. Sales. “Looking ahead, we expect to get our inventory gaps corrected over the next 90 days resulting in additional products contributing to our growth.”

Chrysler Group finished the month with a 71-day supply of inventory, slightly higher than the industry norm – and an apparent build-up meant to offset the impact of its current production slow-down.

Initial indications suggest each of the Detroit makers should gain some share for February at the expense of the Japanese, with only Toyota among that country’s big marques showing a sales gain last month.

“Despite rising gas prices, severe winter storms and concerns about the federal budget, February was a good indication of the overall strength of the market,” said Bill Fay, group vice president and general manager, Toyota Division. “With the most fuel efficient full line of vehicles, Toyota is well positioned and we’re encouraged by very positive consumer reaction to our new Avalon and RAV4.”

Volkswagen reported a 2.9% increase over prior year sales during February. It was Volkswagen’s best February since 1973.

"February's sales results and 30 consecutive months of growth reflects increasing consumer interest in our products," Jonathan Browning, president and chief executive officer of the Volkswagen Group of America.

"There is a lot of intensity in the marketplace," added Browning, who noted carmakers, in general, have picked up their advertising and incentives in order to set up the traditionally strong spring selling season.

The intense competition in key segments, including compacts, midsized sedans and entry-luxury models appears to have taken the biggest toll on foreign-owned brands like Nissan, Honda and BMW. Honda also blamed fierce winter storms for its 2% sales drop.

Little Subaru, which has posted a steady string of annual sales records, even through the recession, fared better than any of its big Japanese rivals – perhaps because it has a strong reputation for slogging through the worst weather conditions in its key Snowbelt markets.

Porsche, posted the market’s biggest gain for the month, sales surging 31% year-over-year. And both Korean makers, Hyundai and its sibling Kia, eked out modest gains.

U.S. industry sales figures for February appear to have come in at a 15.5 million units Seasonally Adjusted Annual Rate, or SAAR.

"Any industry over 15 million units is a strong industry," said VW’s chief American executive, and would mark a big jump from the 14.5 million vehicles sold in 2012.

The strongest factor behind the industry surge appears to be “strong pent-up demand from consumers and businesses that have been holding off on buying a new car for years,” said Jesse Toprak, Senior Analyst for TrueCar. “Even with the rise in gas prices, demand for new cars (appeared to reach) the highest SAAR since December 2007,” or Seasonally Adjusted Annual Rate, explained Toprak.

TrueCar estimated that rebates and other incentives rose a modest 1.8% from January to February, to an average $2,392 per vehicle. But that was still down 3.9% compared to the typical giveback a year earlier.

Meanwhile, Toprak forecast that transaction prices – what consumers actually paid for the typical vehicle in February after adding in options and subtracting discounts and other incentives -- will likely be “nearing record levels” for February at an estimated $30,958.

Paul A. Eisenstein contributed to this story.

Copyright © 2009-2013, The Detroit Bureau

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Family feud: Detroit tries to win mid-size sedan battle

Two new 2013 Honda Accord's are prepped and inspected at Sport Honda in Silver Spring, Maryland. U.S. automakers have consistently fallen behind in the midsize family sedans segment to competition such as the Accord and Toyota's Camry since the mid-1990s.

The recovery of Detroit's automakers is about to face its stiffest challenge yet on an unlikely battlefield: The sizzling market for midsize family sedans, as General Motors and Ford square off against Japanese, Korean and German rivals.
But the two vehicles face an uphill fight against the three market leaders -- the Toyota Camry, Honda Accord and Nissan Altima -- all of which are new or recently redesigned. Add in the latest offerings of the Hyundai Sonata, Volkswagen Passat and Chrysler's existing 200 and Dodge Avenger cars, and the market is as crowded as it has ever been.

The U.S. automakers have consistently fallen short in this sector for nearly two decades, trailing Toyota and Honda since the mid-1990s, but it is now essential that they recover some of that lost share as the segment is becoming more important.

Sales of midsize family cars are up 23 percent through August this year versus 15 percent for the whole industry -- partly a reflection of newer, edgier designs with better fuel economy, more premium features and fresh technology.

A lot is at stake. Detroit's Big Three may have recovered since the financial crisis thanks to government bailouts and generous loans, but they are still struggling to find a path to sustainable growth.

"Now it's absolutely critical" for Detroit to be successful in the midsize segment, says Patrick Archambault, auto analyst with Goldman Sachs. "If you don't have a viable product in that segment, you're screwed in the longer term."

Their recent record has been mixed. GM and Chrysler have returned from near-death to profitability, and Ford has resumed paying dividends. But GM's stock continues to languish -- it closed at $24.42 on Thursday, down 26 percent from its 2010 IPO price of $33, while Ford is down 37 percent in the same period.
"Everyone has upped their game" in midsize family sedans, observes Jim Farley, a former Toyota sales executive who is now Ford's global marketing chief. Farley says the Detroit brands "are more competitive than they have been" in midsize cars -- "but so is everyone."

Detroit has a chance to regain some lost ground but the competition has become much more ferocious, says Michael Robinet, managing director of IHS Automotive Consulting in Novi, Michigan. "The companies with the most at stake are the Japanese," says Robinet.

He notes that the U.S., German and Korean brands "all are raising their game substantially in this segment," while traditional midsize stalwarts Toyota and Honda "have the most to lose and the most to defend."

The best American hope may be the 2013 Ford Fusion, which will reach showrooms in mid-October.

Models like the Fusion "have significantly narrowed the gap" with the best Japanese-branded midsize cars for performance, features, quality and appeal, says Jeff Schuster, senior vice president of LMC Automotive in Troy, Mich.

It is a radical departure from previous models, inspired by the smaller European-designed Fiesta and Focus. The new Fusion will share its basic underpinnings and much of its crisply styled sheet metal with the new European Mondeo, which debuts later this month at the Paris Auto Show.

The Fusion will sport advanced technology, from Ford's acclaimed Ecoboost turbocharged direct-injection engine to the much-maligned MyFord Touch infotainment system. The Fusion Hybrid will also deliver up to 47 miles per gallon.

"Among the domestics, the new Fusion is probably the most important car in the segment," says consultant Maryann Keller, president of Maryann Keller Associates in Greenwich, Conn.

The latest edition of the Honda Accord presents the toughest challenge for the Fusion. The ninth-generation Accord hit dealer lots in early September just ahead of the nameplate's 30th anniversary as the first Japanese car to be built in the United States.

The 2013 Accord, while it doesn't appear to stray too far stylistically from its predecessor, "has a very strong competitive edge," says Tetsuo Iwamura, chief executive of Honda North America. "There is no compromise at all. It has class-leading fuel economy (and) it's very much fun to drive."

The midsize market, which could account for about 3.3 million sales this year, is beginning to look dichotomous, analysts say, which could favor the European-flavored Fusion over the more conservatively styled Accord.

"There are two different (types of) buyers in the segment now," says Schuster. "There is still a market for the conservative, traditional midsize vehicle and one that is more progressive, more focused on design than (just) on dependability and reliability."

Farley says Ford is targeting an emerging group of buyers — the U.S. automaker labels them "Generation Flux" — who are not Toyota or Honda loyalists, but fluctuate among brands. "They're not just on autopilot," he says.
Both the Fusion and the Accord must battle the popular Toyota Camry, which was redesigned a year ago and has been the top-selling passenger car in the United States for 14 of the past 15 years (Accord was No. 1 in 2001). So far this year, the Camry is running away from the pack, steadily widening its lead over the Accord and the Altima.

The Camry's redesign a year ago was seen as a deliberate, albeit modest step away from the stodgy image Toyota has carefully cultivated since the nameplate's launch in 1983.

Toyota benefits from "a large number of buyers on the road who trust in Toyota and trust in the nameplate Camry -- that's a huge advantage going in," says Jim Lentz, president and CEO of Toyota Motor Sales, U.S.A. But the automaker also has attracted younger buyers with its redesigned Camry; the average age in the past year has dropped to 52 from 60, according to Lentz.

Family buyers "want more emotion from their cars, whether it's exterior styling, sophistication of interior, in terms of design and materials (or) driving dynamics," adds Lentz, who says those trends likely will accelerate in the future as Gen Y consumers mature and enter the segment.

Pricing in the sector is competitive and doesn't seem to be a differentiator. The top six sellers have base prices that range from $21,670 to $23,150. Depending on trim level and options, the sticker easily can exceed $30,000.

When vehicle shortages caused by last year's earthquake off the Japanese coast forced Toyota and Honda owners to look elsewhere, one of the beneficiaries was the Altima, which finished 2011 in second place behind the Camry and so far this year is jockeying with the Accord for the No. 2 slot. The redesigned Altima now offers a frugal four-cylinder engine that runs at 38 miles per gallon on the highway.

The Fusion and the Malibu currently remain a distant fourth and fifth, respectively, in the midsize segment through the first eight months of the year.

GM's new Malibu has some initial handicaps. It isn't very different from its predecessor and Chevy dealers have been hampered because the only 2013 Malibu they had to sell until this fall was the Malibu Eco, whose $26,095 base sticker is higher than that of many competitors, while highway mileage of 37 miles per gallon trails similar hybrids. Lower-priced gasoline versions of the Malibu are only now going on sale.

Beyond the top five are the Sonata, which was restyled and upgraded in model year 2011, and the Passat, which received a complete redesign last year and is being produced not in Europe, as before, but at a new $1 billion plant in Chattanooga, Tenn. — moves that enabled VW to shave thousands off the sticker price.

And Chrysler can't be forgotten. Its takeover by Italian automaker Fiat SpA could help lift the U.S. company's game in midsize cars, where it has never been a significant player. But a brand-new Chrysler 200, based on a Fiat platform from Europe, is not due to arrive until early 2014.

"You've really got to put your best foot forward in this segment if you're going to be a winner," says Brian Carolin, senior vice president of sales and marketing at Nissan North America.

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Battle brewing on fuel economy standards

The White House is looking for a way to compromise, on future fuel economy increases, but it remains to be seen whether proposed new regulation of miles on both sides of the debate shall be fulfilled.

The Obama administration is hinting, that it requires automakers produce fleets of cars and trucks to get average 56.2 miles per gallon by the year 2025. One would represent almost a 60 percent increase over the 35.5 mpg mandate in place for 2016. But the bottom line, what a year, still much lower than he environmental protection agency originally pulls the 62 mpg number, which, considering an increase of 5%.

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An even greater increase in the standards advocates say fuel consumption that the compromise figure would not do enough to reduce global warming or reduce America's dependence on foreign oil.

But some industry representatives and others say that costs might cause even the 56.2 mpg standard, in which more than carry the public leading to declines in new car sales and the loss of thousands of jobs can, auto sharp. You have proposed 47 mpg, a standard perhaps, which would be an annual increase of 3% more than a decade.

"Overly ambitious benchmarks set 14 years in the future risk serious economic damage, if consumers want and needs not met," Bailey said wood, a spokesman for the National Automobile Dealers Association.

The corporate average fuel economy, or CAFE standards were controversial, since they were made law in 1975 after the first Middle East oil. Opponents of the standards by the rules for two decades, with only the most modest increases to the Obama management starting a boost able, effectively freezing 2012 model year 2016 negotiated.

Sporadic certain run up in oil prices over the past two years and growing concern about global warming, fuel the supporters of the Government mandated standards now they feel have to achieve momentum the largest mileage increases, because rules have been passed the original more than three decades ago.

Sure, would like to, that consumers improved fuel economy. Translation is reflected in the market smaller cars and smaller drives. But growing frustration with the Government and the public debate about global warming have more difficult to sell the original 62 mpg target, as some had initially expected.

Also complicated questions: Americans are worried about jobs and a study issued this month by the center of automotive research serious questions about the costs and benefits of pressure fuel consumption too far, too quickly raised.

The risk "is Ernst,", says the car study, which said that the higher standards the price of a typical car sold in the United States of about $9,000 and boost could at the same time new car sales of up to 5.5 million units per year, removing potentially more than 265,000 us jobs.

Advocates CAFE standards complains issued by the Boston Consulting Group pointing the car report as "Propaganda", instead to another study, on the same day as the auto report.

The Boston Consulting Group is far less negative about the projected sharp increase in the mileage. It would be "much cheaper than expected," said Boston Consulting Group analyst Xavier Mosquet, estimated the average cost at $2,000 per vehicle. Which, he claimed, would be paid easily by fuel savings, especially if gas prices continue, expect as many.

Why such a discrepancy between the two projections? There are many assumptions that are going forecasts more than a decade--as well as the types of technology, to adapt that may be available to meet those needs in which consumer demand.

Industry leaders will shrink as global head of product development Derrick Kuzak, Ford say that drivers be forced not only clearly such, but they will get probably also no longer today popular that capable of the kind of drives. The industry is probably forced to replace V8, V6s and even smaller 4-cylinder engines with battery-based technologies, which could affect performance, range and payload.

On the other hand, proponents of the substantial number of conventional vehicles, which already provide show CAFE 40 mpg on the highway without use of hybrid technologies that could bring even more savings. The Boston Consulting study, on the one hand sees tremendous opportunities with direct injection, turbocharging and advanced transmission systems.

The Administration backed down on the previous 62 mpg standard inserted, was the new Republican-majority House in January. But the question of the fuel economy is less partisan than some may think.

Liberal Senator Carl Levin, D Michigan, such a page by the industry, saying that even the reduced 56 mpg target is too high. On the other hand, a group of 15 prominent Republicans, including former Governors, members of Congress and EPA administrators, the White House last week at the full wrote back 62 mpg target.

With consumers so worried about fuel prices there are only a few, who expect that the CAFE debate is put back on the back burner. It is unclear whether the new proposal is the point at which the White House expects to start collective bargaining with the automotive industry, or if it looks 56 mpg than the compromise it is prepared to settle as.

Administration representatives have officials from the automotive industry, Capitol Hill leaders allegedly and others meet in the last few days with has been hoping to take the political temperature.

White House "has made no decision, but our goal remains, [a revised mileage] to propose rule this September," said spokesman Matt teaching I.

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