July Autos Sales Highlight Small Cars' Success

While nearly every automaker was punished last month in North America, small, fuel-efficient cars offer a lifeline

By David Kiley

If July sales for the U.S. auto industry show one thing it's this: If it doesn't have a good fuel-economy story, it's not moving out of dealer lots—it's crawling.

Overall, Ford (F) sales were down 14%, General Motors (GM) sales sank 26%, and Chrysler fell 29%. Imports were not spared either. Toyota (TM) sales were off 14%, and Honda (HMC) was down 2%. Nissan (NSANY) once again was among the few gainers, up 8.5%, but only after ratcheting up sales incentives, including about $10,000 on its slow-selling Titan pickup truck. Volkswagen (VOWG.DE) was up 4%. BMW's (BMWG.DE) fun, fuel-efficient, and microscopic Mini was up 24% in July, and now there is a long waiting list to buy one.

Autodata said total light vehicle sales were down 13.2% in July vs. a year ago. Sales on the year so far are off 10.5%.

Automakers are scrambling to cope with a far deeper drop in demand than they anticipated earlier in the year. GM Chief Financial Officer Ray Young says "the second quarter this year has been one of the fastest-changing markets I have ever seen." Ford marketing chief James Farley calls the drop in July "breathtaking." Chrysler Vice-Chairman James Press says in 38 years, "it is the most challenging times I have ever seen."

Some Shortages

But within the numbers lies the real story. Cars are hot. The smaller, the hotter. Ford Focus retail sales are up 16%. Ford's SUV sales were down 37% and pickups/vans were off 22%. At GM, sales of small cars were up 17% and midsize cars had risen 34% year-to-date. But pickup truck sales last month were down 41%. In fact, overall sales at some companies including Toyota, Honda, and Ford would be higher if they could produce more small and midsize cars to meet demand. Toyota, which sold 197,424 vehicles last month compared with 224,058 a year earlier, has a four- to six-month waiting list for Prius hybrid cars. "We don't have enough of some of our cars to sell," says GM sales and marketing chief Mark LaNeve.

Ford's Farley notes that the company was seeing a surge in demand for its fuel-efficient Ford Focus in Texas, traditionally a limp market for compact cars, as a large percentage of purchasers traded in F-Series pickup trucks.

Toyota is short of Corollas and four-cylinder engines. "Having the industry's most fuel-efficient lineup is of value to us so long as we have the right product mix in our showrooms," says Jim Lentz, president of Toyota's Torrance (Calif.)-based U.S. sales division. "That's why we're accelerating production of four-cylinder models and quickly responding to market conditions."

Consumer Burdens and Incentives

GM estimated that the industry sales rate was the lowest since August 1992. "We're basically in a period that feels a lot like 1991 and 1992 when we had a similar recession," says Michael DiGiovanni, GM's chief sales analyst. "There's a lot of negatives out there that are obviously weighing on the consumer."