Auto Sales Stabilize, but Not for Everyone

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"Cash for Clunkers": Truck Sales Stimulus?

Hyundai, which launched a program this week that guarantees a year of $1.49-a-gallon gas for buyers of its new cars, said that 40% of consumers it surveyed said they were not buying a new car out of fear that gas prices will soon return to $4 and above.

"Automakers still earn much more profit selling a pickup truck or big SUV than they do selling a small car, and that is one of the reasons profits will still be under enormous pressure even as overall sales improve over the next couple of years," says independent marketing consultant Dennis Keene. "And that goes for Toyota and Nissan, not just Detroit."

That harsh reality also explains why the "Cash for Clunkers" legislation signed by President Obama last week was specifically written to stimulate sales of pickup trucks and SUVs, rather than focus on selling more gas-thrifty passenger cars. It is no coincidence, says one Washington-based auto industry official, that consumers have to have an old vehicle that began with gas mileage below 18 mpg and can get a $3,500 government voucher for buying another truck that gets 2 mpg more than the trade-in.

"Those numbers were hashed out specifically to benefit Detroit's pickup business, so they could trade in an old pickup for a new one," says the industry official, who asked not to be named. "People who own cars are already looking for higher fuel-economy vehicles, so we don't have to give them more money."

Car-buying Web site Edmunds.com says that its site traffic for people looking for more fuel-efficient cars spikes when there is a sudden lurch in gas prices. "But we have consistently seen more traffic searching for higher fuel-efficient cars since last year, even as gas prices came down, and that does seem like a permanent change," says Edmunds.com's Toprak.

The Cash for Clunkers bill goes into effect later this month, when consumers can start trading in older cars and get government vouchers for up to $4,500. Besides the benefit to the pickup business, analysts expect that it will boost Toyota and Honda sales because they have the most cars that qualify for the program as a percentage of their overall showroom models. Toyota has 15 vehicles that can be bought through the program, as well as five Lexus models and all three Scion models. Chrysler and Jeep brands, by contrast, have just two, though Dodge has a few more.

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Kiley is a senior correspondent in BusinessWeek's Detroit bureau.

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