Bloomberg News

All-Wheel-Drive Sales Surge as U.S. Suffers Worst Weather: Cars

March 04, 2014

Uploaded by UUID:7569503 at 3/3/2014 8:02 PM

Winter’s wrath fell hard on car dealer David Kelleher last month, forcing him to close his Chrysler-Dodge-Jeep store near Philadelphia for five days due to heavy snow and ice. There was an upside, though: Booming sales of all-wheel drive models.

“In past winters, customers had to take a day off work if they had a car with rear-wheel drive because it didn’t get them out of their driveway,” said Kelleher, whose store is in Glen Mills, Pennsylvania. “When we got hit with this snow, people said, ‘Screw this, I’m finally going to take this plunge.’”

Even as auto sales have been slowed this winter by record cold and snow, brands known for their AWD offerings have fared well. In February, when industrywide sales were little changed, Subaru sales climbed 24 percent and Jeep deliveries jumped 47 percent. Last year, almost one-in-four autos sold in America were equipped with all-wheel drive, according to IHS Automotive.

Once a feature found mostly on big trucks, AWD is poised to be the biggest thing since heated seats, featured on luxury sedans and tiny wagons. An all-wheel drive transmission allows all four wheels to propel the car, or any combination of the wheels depending on traction conditions.

“There are just so many more choices now,” said Bill Fox, who sells Subaru, Honda, Toyota, Chrysler and Chevrolet models at his Auburn, New York dealership. “There has been a groundswell of interest from young, married people who are taking a look at safety features and it has to have all-wheel drive. It just wasn’t as important before.”

Frozen Lots

Total U.S. auto sales were little changed in February at almost 1.2 million vehicles, following a 3.1 percent decline in January, as record snowfalls and frigid temperatures kept buyers out of showrooms in many regions of the country.

“A lot of places, from the Midwest to the Northeast are going to have a top ten snowfall winter, and that combined with the cold it’s certainly going to rival some of the cold snowy winters we had back in the 1980s, 1970s and 1960s,” said Alex Sosnowski, a senior meteorologist for AccuWeather Inc. in State College, Pennsylvania.

The shift to AWD, though, started long before the snow began to fly this winter.

Sales of cars and sport-utility vehicles with AWD jumped 79 percent in the U.S. from 2009 through 2013, while overall industrywide sales grew 53 percent for those models, according to IHS Automotive using Polk vehicle registration data. In 2013, vehicles equipped with AWD accounted for 23 percent of all autos sold, up from 19 percent in 2012, IHS said.

Ford Inroads

For Ford Motor Co. (F:US), sales of all-wheel drive cars and SUVs nearly tripled from 2009 through 2013, rising 189 percent, said Erich Merkle, the company’s sales analyst. That increase excludes Ford’s pickups, such as its top-selling F-Series models. Ford’s Escape small SUV helped drive the gain.

“Escape and Explorer sold exceptionally well last year,” Merkle said. “That bumped up our numbers.”

So far this year, Escape sales are down 3.3 percent, which Ford attributed to fewer sales to fleet buyers as the automaker’s production has been hamstrung by parts shortages that resulted from the bad weather.

Chrysler Group LLC said it also has seen a tripling in AWD demand since 2009. And now Mother Nature is even cooperating.

“The severe weather has been ideally suited for our legendary Jeep 4X4 capability,” Reid Bigland, Chrysler’s U.S. sales chief, said in a statement yesterday.

Sales almost doubled last month for GM’s Buick Encore small SUV and the Chevrolet Equinox compact SUV had its best February ever, the company said. GM said sales of its crossover models -- SUVs built on car frames instead of truck chassis -- rose 4 percent last month, while its overall sales fell 1 percent.

Small SUVs

The rise of AWD is an outgrowth of the surge in sales for small SUVs, such as the Escape, the Honda CR-V and the Toyota RAV-4, said Mark Wakefield, a partner for consulting firm AlixPartners in Southfield, Michigan. Baby boomers entering empty nest years are shifting from large, truck-based SUVs and family cars into compact crossover utility vehicles.

“There’s an expectation when you get into a crossover that it’s going to be 4-wheel drive,” Wakefield said. “The average buyer, says, ‘This is a safety thing, why wouldn’t I do this?’”

For the automakers, these small SUVs make more money because they share the mechanical underpinnings of high-selling compact cars. Ford’s Escape is based on the frame of its Focus small car. The Honda CR-V shares its underpinnings with the Civic compact. The Toyota RAV-4 is built on the same chassis as the Corolla. By spreading the cost of developing and building these models, automakers boost profitability.

Lower Costs

“The higher volume lowers the per-unit fixed cost, which is a blessing and a positive,” said Tom Libby, auto analyst with IHS Automotive in Southfield, Michigan. “Not only do you have your global volume of the Corolla, but you also have your RAV-4 on the same platform. So you’re spreading your costs even further, which helps out Toyota.”

On the high-end of the market, AWD has also become a sales and profit generator. Volkswagen AG’s Audi luxury line popularized AWD when it outfitted its mostly front-drive models with the feature and marketed it for providing road-hugging driving characteristics. Audi reported a U.S. sales record last month, driven by a 34 percent gain by its AWD Q7 small SUV.

“Audi has made a lot of hay out of the driving dynamics and capability of 4-wheel drive,” Wakefield said. “That forced a response from Mercedes and BMW, who realized they needed to invest in it because people were really buying these things.”

Fuel Savings

As AWD sales soared, the cost of the option has come down, making it more affordable on relatively inexpensive cars, said Kevin Tynan, auto analyst with Bloomberg Industries.

“You don’t need to spend $50,000 anymore to get all-wheel drive,” said Fox, the New York dealer.

The feature also is more fuel-efficient than it once was because it is being outfitted on models built on lightweight car foundations, rather than heavy truck chassis.

“For the extra $1,500 to $3,000, people feel like they need it,” Tynan said. “It’s about fuel-efficiency and utility and the perception of that safety with all-wheel drive.”

Regional Tastes

While the feature’s popularity is growing, demand remains regional. The Northeast is the No. 1 market for AWD, Ford said. AWD cars and SUVs accounted for 30 percent of Ford’s growth in that region since 2009.

The snow belt of the Upper Midwest and Pacific Northwest are also popular areas for AWD. Buyers in sunshine states can live without the feature.

“We do offer all-wheel drive in our regular car lines, but we haven’t seen any kind of uptick at all out here,” said Terry Miller, general manager of Galpin Ford in Van Nuys, California.

The appeal of AWD models, though, transcends weather and will remain long after the last snow flake melts, Libby said.

“This sweet spot in the market is not just based on size, but it’s also based on a combination of features,” Libby said of AWD models. “The reason the Cherokee, the RAV-4, CR-V, Escape and Subaru Forester are doing so well is that they have several things in one. They drive like a car and have fuel economy like a car, but with the capabilities of an SUV.”

To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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