Americans Flocked to Fuel-Efficient Cars in May; Japan Carmakers Cut Shipments After Quake

June 2, 2011 — -- U.S. auto sales slumped in May after production problems from the Japan tsunami curtailed imports, but dealers are reporting that fuel-efficient vehicles are sailing off their lots.

Jennifer Brundage, e-Commerce sales manager at a Ford dealer near Buffalo, N.Y., said despite renewed concerns the economic recovery, business has been strong in the past six months, especially for cars that get good gas mileage.

"People are trading in their SUVs and buying more gas-friendly vehicles," Brundage said. "We're selling more four or six cylinder vehicles."

Overall, U.S. auto sales dropped 3.7 percent to 1.06 million vehicles in May from 1.1 million a year ago. The lost output from Japan was estimated at 100,000 to 150,000 vehicles.

Lacey Plache, Edmunds.com's chief economist, said car manufacturers learned their lesson in the summer of 2008 when gas prices hit $4 a gallon.

"American automakers were caught short-handed," Plache said. "Big trucks were not selling and dealers didn't have a lot to offer in terms of small cars. That's turned around in the past few years."

The national average gas price is $3.79 a gallon, up $1.066 from a year ago, according to the Energy Information Administration this week.

Plache said now there are about 20 vehicles available in the U.S. that get up to 40 miles per gallon on the highway.

If the economy continues to improve more drivers will return to the car market instead of stretching out the life of their current vehicles, according to Plache. Currently, the average age of vehicles on the road is 10.4 years, a post World War II high. In 2007, before the recession, the average was 9.2 years

On Wednesday, Ford and General Motors reported slightly fewer overall sales in May from a year ago, despite stronger demand for smaller fuel-efficient cars.

Total sales of Ford, Lincoln and Mercury vehicles decreased 0.1 percent this May to 192,102 compared with 192,253 cars a year ago.

Ford announced 29,423 sales of Fiesta and Focus models in May, its biggest small-car month since May 2008, when gas was sky-high. Ford sold 22,303 Focus models and 7,120 Fiesta models. Its most popular car is the Ford Fusion, a mid-size sedan, at 24,666 units sold in May.

Now even in the larger vehicle category, people are opting for fuel-efficient options, Plache said. Ford's F150 with a V6 engine has outsold its V8, she said.

Utility vehicles are still popular, as evident from Ford's 62,044 trucks sold in May. Ford's F-series utility vehicles were the best-selling vehicle in May at 42,399, though slightly down from 45,435 vehicles in April.

GM's Chevrolet Silverado came in second at 28,409 vehicles.

"For fuel efficiency, people tend to think of a small car or hybrid. But some people need a pickup truck," Plache said. "Manufacturers have tried to maximize fuel efficiency and have seen consumers responding in the past few months."

General Motors sales fell 1 percent to 221,192 cars in May compared to 223,410 a year ago.

Japanese car manufacturers fared worse in reported sales, mostly over production problems after the tsunami and earthquake in March.

Toyota sales plunged 27.9 percent for May from last year across all vehicles. Toyota's passenger car division saw a 32.2 percent sales decline from last year, while its sales in its Lexus division declined 40 percent. Honda's sales fell 16.1 percent in May from a year ago.

Nissan Motor Co. reported a sales decline of 9.1 percent to 76,148 cars from 83,764 cars a year ago.

Plache said U.S. manufacturers gained market share from Toyota and Honda's decrease in supply and sales.

In April, Toyota and Honda had 25 percent of U.S. market share – 13.8 percent and 10.8 percent respectively. GM had 20.1 percent while Ford had 16.4 percent in April.

Toyota and Honda's combined market share in May dropped to 18.8 percent.

Meanwhile, Hyundai's reported its best-ever May after a 21 percent increase in sales from its record May 2010. The South Korean car manufacturer, which owns Kia, sold 59,214 cars last month. Its most popular car was the Sonata, which sold 22,754 units last month. Hyundai is the fifth largest in car sales globally.

David Cantin, general manager and part owner of Brad Benson Hyundai in Monmouth, N.J., said the Elantra, with up to 40 miles to the gallon, is the second most popular car at his dealership, contributing to 37 percent of his monthly sales. The Sonata is the most popular, with 40 percent of his monthly sales.

"Right now is a great time to be a Hyundai dealer. The manufacturer is doing a stunning job from their management to dealer to body," Cantin said. "Hyundai is doing a great job in getting us the cars. They're keeping up with the demand very well."

While business seems to be picking up for Cantin and car dealers across the country, sales are expected to pick up in the next several months, not only from increasing supplies but also from consumer demand.

Consumers Plan to Buy More

According to the Consumer Confidence Index, more consumers say they plan to purchase a vehicle in the next second half of 2011. In May, 13.8 percent of consumers surveyed said they plan to buy a vehicle within the next six months, the highest recorded percentage since the Conference Board began collecting data in 1967. The percentage is up from 12.5 percent in April and 6 percent in May 2010.

Ken Goldstein, an economist with the Conference Board said the data was collected using a different methodology starting in 2010, which may be contributing to the record response. But he still says it is "crystal clear" that the consumer appetite for new cars has been pent up during the economic recession and recovery – until now.

"These trends might continue not only through the summer but through the end of this model year," he said. The next year's models are traditionally introduced in September.

"For carmakers, there's a good chance it's not going to pick up from where it is, better chance it won't drop off," he said.

The story may change if job growth continues to falter. U.S. companies hired fewer workers than expected in May, according to payroll processor, ADP, this week. Private employers added 38,000 jobs in May.

"For consumers, we continue to muddle through, especially if job situation looks up. That's the key," he said. "If the job market starts to weaken, none of this is going to hold up as well."

A car is often the largest or second-largest purchase for a household, after a home, said Plache.

"People really have to feel motivated to buy," Plache said. "They have to feel confident that their personal financial situation will remain stable enough for the future."