5. AUTOS: Industry hits the brakes on truck production (Greenwire, 07/25/2008)

Josh Voorhees, Greenwire reporter

With their sales and profits plummeting, automakers are scrambling to transform their offerings from hulking trucks and SUVs into smaller, more fuel-efficient vehicles that their customers now demand.

The industry has witnessed near-universal drops in sales this year as consumers spooked by record-high fuel prices flee from gas-guzzling behemoths.

While passenger car sales have remained steady, falling just 1.5 percent this year, sales of light trucks -- down 17.9 percent on the year and 28.3 percent in June -- are dragging companies' overall totals into the turf.

Stung by $8.7 billion in second-quarter losses, Ford yesterday became the latest auto giant to announce a major overhaul. The company will retool several North American plants to produce small cars instead of their gas-guzzling brethren. By 2012, Ford will also introduce a half-dozen European small car models into the domestic marketplace (Greenwire, July 24).

Manufacturers began producing fewer trucks earlier this year as gas prices began to march upward. Slightly less than a million new trucks rolled off assembly lines in the first half of 2008, down from 1.4 million over the same time last year.

General Motors, Chrysler, Nissan and Toyota have all announced plans to further slow or suspend truck production, leading forecasters to predict second-half totals will be almost half of what they were in the first six months of 2007.

The recent production restructuring is the right move -- but it's too late to help current sales trends, said Aaron Bragman, an automotive analyst with Global Insight. "They are boosting production of small cars as fast as they can," he said. "But it's just not happening fast enough to keep up with demand."

Even Toyota has been caught off-guard by the speed at which consumers have shifted their car-buying behavior. The company has been unable to produce batteries fast enough to meet demand for its popular hybrid, the Prius.

As a result, Prius sales have slowed at a time when the average new model spends just one day on a car lot.

"Right now, you are looking at a dollars-and-cents fiscal choice being made by consumers," said Rob Tregenza, an automotive analyst with consumer marketing firm Iconoculture. "And if you are an automaker, you have to have a relevant small-car strategy to deal with that."

There were a few bright spots in the automotive landscape, attributed mostly to manufactures with existing fleets full of small and compact cars, said Bragman. "It's not as much as being prescient as having the right vehicles at the right time," he said.

Honda, whose sales are dominated by smaller cars like its standard and hybrid versions of the Civic, saw sales edge up 1.1 percent in June and 4.1 percent on the year.

Kia and Hyundai, imports that typically garner relatively small shares of the U.S. market, were also able to post modest June gains thanks in large part to their ability to shift inventory to the United States from overseas.

'Stuck with big SUVs'

Dealer inventory being mismatched with current consumer choices is only one reason behind the lackluster auto sales numbers. There's also the slowing economy.

Bragman said tight budgets for many Americans make it almost impossible for someone who drives a truck or SUV to stomach the loss associated with selling or trading in a gas guzzler.

"Lots of dealers are refusing to take them in trade-ins," Bragman said. "A lot of people with big SUVs are stuck with big SUVs."

As a result, many consumers are in what Tregenza called a "holding pattern." He said, "If you have the capacity as a consumer to make a change now, you will; however, not all consumers can do that."

Worse still for major automakers, Tregenza said shortages of some of the best-selling small cars are helping to break down brand loyalty as consumers look to makes they had not previously considered.

"All of a sudden, this 'I'm a Ford guy, I'm a Chevy guy' is waning," he said.

Even after dealer showrooms are stocked full of small fuel-efficient vehicles, some customers may not return so eagerly after their flings with lesser-known brands.

"GM and Ford have a big challenge in getting people to return to their showrooms," Bragman said. "It's going to be a real challenge to recapture a lot of these demographics."

'Americans still need large vehicles'

While the trucks and SUVs appear to be on the outs with the average American consumer, Bragman cautioned that it is unlikely they will become a relic of a $2-a-gallon era.

"I've heard a lot about the death of the SUV, but it really isn't happening," he said. "While the appeal of the SUV is changing, Americans still need large vehicles."

He said consumers will look for more fuel-efficient crossover SUVs and trucks, such as Subaru's Forester, which saw June sales soar by more than 40 percent.

Business as usual is a thing of the past even if gas were to begin to fall back towards $2 per gallon, Bragman said. "If gas prices fall, consumers aren't going to continue to buy small cars, but we won't slip back to where we were, either," he said.

Even if consumers have not learned the value of fuel efficiency, Bragman said the manufacturers have.

"Automakers have said, 'We can't go back,'" he said. "Being near death like they are really forces your eyes to open."

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