The SUV bubble bursts

Not surprisingly, expensive gas is making Americans trade in their large SUVs for more fuel-efficient vehicles. Equally unsurprisingly, the American automakers are stuck with lineups heavy on trucks and SUVs, and light on quality economy cars:

Nationally, Toyota Motor Corp. officials say the Corolla, one of the Japanese company's smallest and most fuel-efficient passenger cars, had 8.7 days' supply of inventory at the end of last week. In the industry, inventory of 50 to 60 days' supply is seen as adequate. Honda Motor Co. officials are struggling to keep up with demand for the Civic, of which there is nine days' supply. "Inventories are as low or lower than they've ever been for the Civic," said Sage Marie, a Honda spokesman. "They're basically being bought right off the truck."

Toyota dealers in the D.C. area say they also are seeing an uptick in demand for the smaller vehicles. But the trend isn't as pronounced as in truck-dominated Texas where people who have been buying trucks for years are rushing to get out of them. "Most of the time you come in here and you might have 80 Corollas to choose from," said Dave Reynolds, general sales manager of Jack Taylor's Alexandria Toyota. "Now you come in and you have 20 to choose from."

While small car sales are helping to lift the Japanese automakers, Detroit's General Motors Corp. and Ford Motor Co. are sinking under the weight of large sport-utility vehicles, once the industry's cash cows. The two automakers have reported substantial slides in profits in their North American operations this year, and their bonds have junk status on Wall Street. The interest in small cars has caught the two automakers unprepared, said Dave Healy, an auto industry analyst at Burnham Securities Inc. in New York.

For the Big Three, Healy said, investment followed profit margins. "As long as the SUV segment was doing well, they poured money into that and neglected small cars," Healy said. "At that time you could have made a very good case that it was giving the public what it wants."

Over the next couple of years, look for automakers to bring in smaller vehicles already available in Europe and Japan, like the Ford Fiesta, VW Polo, Toyota Yaris (already sold in Canada as the Echo hatchback) and Mitsubishi Colt.

Posted by damian at September 28, 2005 03:06 PM | TrackBack