Life After 'Clunkers' for Best-Selling Cars?

Aug. 10, 2009— -- They've been tops on government lists for "Cash for Clunkers" sales, but do cars like the Toyota Corolla and the Ford Focus have what it takes to maintain their success after the program ends?

That may depend on how you define success. While sales of these cars look certain to drop in the near-term, experts say, their low cost will give these small, gas-powered vehicles an edge for years even as the market becomes more crowded with hybrids and electric cars.

"Assuming gas isn't $10 a gallon, your small, gasoline engines are what the lower to middle class is going to be looking at," said Stephen Spivey, senior auto industry analyst with Frost & Sullivan.

Clunkers' Temporary Boost

Under the wildly popular "Clunkers" program -- known officially as the Car Allowance Rebate System or CARS -- consumers who trade in old gas guzzlers receive between $3,500 and $4,500 toward the purchase of more fuel-efficient, often smaller cars.

The high gas mileage and relatively low cost of the Corolla and the Focus, experts say, helped catapult them to the top of the government list of vehicles sold under the program. The base models for both cars, before options packages, cost less than $16,000 and both get 35 mpg on the highway.

Name recognition helped too, said Brian Moody, a senior editor at Edmunds.com.

"I think when people think what small car do I want, I think cars like the Ford Focus, the Toyota Corolla and the Honda Civic" -- which ranked no. 3 on the DOT's best-seller list -- "are the first ones that just jump to mind," Moody said.

"There are other cars that would qualify and that are small and affordable, but I think those are the three that the average person just kind of gravitates to because that's what's known."

The Corolla and the Focus were dueling for first place under the program. Initially, the Focus emerged as No. 1 on a top 10 list of most cars sold, according to the Department of Transportation. But rankings released last week showed the Corolla had knocked the Ford car down to second place.

Some 7,000 Corollas were sold in the first week of the program, from July 24 to July 31, according to Toyota. Ford said it didn't have comparable data to release on Focus sales, but reported total July Focus sales of 15,700.

Not everyone agrees with how government devised its Clunkers' rankings. Edmunds.com recently released its own sales rankings listing the Focus at No. 2, the Civic at No. 6 and the Corolla at No. 9. Pick-up trucks took up several top spots.

But Edmunds.com analyst Michelle Kreb also noted that, even before Clunkers, trucks were a popular purchases following traditional trade-ins. Now they seem to be losing some ground to small cars.

"Participants in the program are choosing more fuel-efficient vehicles. Before, cars were only two of the top 10 vehicles purchased with clunker trade-ins; now, six are cars," Krebs said. "Interestingly, all buyers, regardless of trade-in, are opting for smaller, more fuel-efficient cars at a higher than usual rate."

Why Corolla, Focus Have an Edge

The makers of the Corolla, Focus and other popular Clunker cars are expected to see falling sales whenever the $2 billion just approved for the CARS program runs out.

Even without Clunker cash, experts say the Corolla and the Focus will remain the go-to cars for many for at least two reasons: price and fuel-efficiency.

The government's increasingly high standards for fuel emissions and grants for alternative fuel technology are propelling automakers to forge ahead with a bevy of models, ranging from the electric-powered Chevy Volt to ever-more fuel efficient hybrid-powered vehicles.

But their expense could prove prohibitive for many consumers until the new technologies become cheaper.

Gas-powered small cars are "what's going to be popular over next five to seven years, until they figure out how to make these lithium-ion batteries not cost $10,000 so that you can put them in the mass market," said Spivey. "When you don't have to sell a hybrid for $35,000 or $40,000, when you can sell it for $20,000 or $25,000 … then I think that's when you'll see that market take off."

Toyota Corolla

For now, the makers of the Corolla and the Focus are enjoying their time in the sun under the Clunkers program.

"It's the perfect product in this type of program," said Ed LaRoucque, Toyota's National Small Car Marketing Manager. "More than ever, in this economy people are looking for a good value."

Though a Japanese car, the Corolla has a long history in the U.S. The first model was exported here in 1968.

Toyota has built 8 million Corollas over the years and the 2010 model is the tenth generation of the vehicle. LaRoucque said the company has focused heavily on listening to what customers want and that's why the tenth generation is a bigger car with a restyled design. There are two engine options in all Corollas, the 1.8 liter four-cylinder and a 2.4-liter inline-4.

Not Exciting but Reliable

Part of the Corolla's appeal, said Edmunds' Moody, is that it feels like a more expensive car.

"The Corolla, in terms of small cars, is sort of like the Lexus of small cars," he said. "It just has a nice, finished feel inside. When you look at the materials and kind of poke around and press certain things, it seems like it might be a little bit more upscale then you would expect for an $18,000 to $20,000 car."

On the downside, Moody said, the Corolla's handling is not as smooth as you'd expect from a Toyota. It's not exactly sporty either, critics say.

Still, said Aaron Bragman, an auto analyst for IHS Global Insight, although the Corolla is not going to set car enthusiasts' blood on fire, there is a reason why the vehicle has maintained a very high owner loyalty in the industry.

"Basically, it's an appliance. It's reliable. It gets you from A to B easily," he said. "Corolla is a good car. It's not going to offend anybody and it will do what's asked of it, and that's really all a lot of people require."

Ford Focus

It's the Ford Focus' improved technology that's drawing customers, said Andrew Ashman, a Ford contest and incentatives manager.

In addition to its fuel economy, the vehicle offers Ford's SYNC technology which provides customers hands-free control of their mobile phone, MP3 player and GPS -- a feature more common to more expensive cars.

Ford was the only one of the three major American automakers not to accept billions in government bailout funds, but the company's got its own challenges, including stiff competition from foreign automakers like Toyota as well as Honda.

"We're working everyday to prove to customers that we have the plan, we have the product and that people should come back to Ford," said Ashman.

A front-wheel-drive car, the Focus was introduced in 2000. The car got a refresh in the 2008 model and is currently available as a coupe or sedan. A 2.0-liter inline four-cylinder engine with a 140 horsepower output is standard in all Focuses.

Moody said the Focus' interior is less attractive than the Corolla's.

"It doesn't feel as premium on the inside," he said. "The materials feel a little cheaper."

But like the Corolla, it's also got a mass appeal, Moody said.

"The car just happens to have the right combination of things: It's comfortable, it's inexpensive," he said. "The appeal is somewhat mass appeal because it's not super racy-looking, it's not polarizing -- which in some cases you could describe as maybe generic or boring-looking -- but I think that mass appeal with both cars helps them sell well."

Foreign vs. Domestic

In some consumers' minds, the Focus has at least one distinct advantage over the Corolla: It's made by an American company.

"There are people out there who still want to buy a domestic car and they have their reasons for doing that, whether it's the economy or jobs or they know someone down the street who works for Ford or they worked at the Ford plant," Moody said.

But a consumer in the market for an inexpensive, small car made by an American automaker will find limited options.

"They usually do better at making large trucks, minivans, sedans, and in some cases hybrids, but those are expensive," Moody said. "So the Ford Focus is really one of the best."

When Cash for Clunkers was still working its way through Congress, some lawmakers voiced opposition to the program because it was open to foreign carmakers. The fear was that overseas automakers like Toyota and Honda would best American automakers in Clunkers sales.

Those concerns have now found footing. Under the Clunkers program, four out of the top five selling cars are made by foreign companies. Of the top 10, six are made by foreign companies.

The Department of Transportation, however, offers at some statistics that might calm the critics. Of the total cars sold under Clunkers, the department said, 45 percent were made by the Big Three -- Ford, General Motors and Chrysler -- a number equal to the American companies' overall market share.

Early analysis shows that of the foreign cars, more than half were manufactured in the U.S., according to the DOT. Toyota said 90 percent of the Corollas sold in the U.S. are built at U.S. plants.