J.D. Power and Associates (owned by BusinessWeek parent McGraw-Hill) forecasts that auto sales will come in this year at 14.2 million units, down from 16.1 million last year and more than 700,000 units below what the firm projected last January.
One of the reasons for the change is automakers’ reduction in fleet sales to rental car companies, a source of largely unprofitable sales in the past. Fleet sales are down 21% this year, while retail sales to showroom customers are down 10%.
“While the sluggish economy is the primary driver of the reduction in retail sales, fleet sales are expected to experience an even steeper decrease from 2007,” said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates. “This trend indicates that the automotive industry is making serious efforts to continue reducing fleet sales, while also allowing retail sales to work through the downturn without heavy use of incentives.”
Although sales for smaller vehicles are rapidly increasing, the growth rate of smaller vehicle segments has not been enough to offset significant declines experienced in large-vehicle segments. Retail sales for the compact basic segment from January to June 2008 were up 28 percent compared with the first half of 2007. In contrast, sales in the first half of 2008 for all vehicles in the large segments—which include large pickups and SUVs—were down 26 percent, compared with the same time period in 2007.
Also hurting automakers is a shortage of the smaller fuel efficient cars that consumers are demanding. You can’t sell what you don’t have and what consumers are looking for. Ford and GM have both gone into extra shifts on their Focus and Chevy Cobalt sub-compacts. Both companies are making announcements about turning some of their truck and SUV production lines over to small cars. Would-be Toyota Prius owners are waiting months for a car. Honda dealers have waiting lists for Civics and Fits in some parts of the country. And Hyundai marketing chief Joel Ewanick says one of his big concerns this year is getting enough Elantra and Accent sub-compacts to meet demand.