Sunday, June 22, 2008

The Smaller the Better, Automakers Are Finding

DETROIT — The demand for fuel-efficient small cars and hybrids is so fierce that automakers cannot produce them fast enough.

Limited supply of some of the hottest models is taking its toll on an industry that has already suffered a 14 percent drop in unit sales in the United States this year.

Analysts say that June sales are coming in at the lowest monthly rate in at least 15 years, partly because manufacturers have been unable to satisfy the surging demand for compact cars and hybrid models.

Sales for the month so far are equal to an annualized selling rate of 12.5 million vehicles, according to the market research firm J. D. Power & Associates.

“It’s abysmally low, the lowest we have seen in a long time,” said Tom Libby, J. D. Power’s chief industry analyst. “And the inventories of small cars are hurting sales, no doubt about it.”

With gasoline prices topping $4 a gallon, consumers are overwhelming dealerships with demand for the littlest vehicles in the showroom.

Mr. Libby said that the tiny Honda Fit is on a dealer’s lot an average of 11 days before it is sold, half the time of traditional quick sellers like the Cadillac CTS and Mercedes-Benz C300 luxury sedans.

“These are amazingly low numbers for a car of this type,” he said. “If gas prices stay where they are, I think we’ll see this for quite a while.”

Hybrids are even more difficult to buy. Four of the 10 fastest-selling vehicles are hybrids, led by the Toyota Prius, which sells within four days of arriving at the dealer, according to J. D. Power. The average time to sale for the industry in June, by comparison, is 57 days.

But while inventories are low, manufacturers cannot move quickly enough to increase production of popular small cars like the Toyota Corolla, Honda Civic and Ford Focus.

Ford Motor Company, for example is running its Wayne, Mich., assembly plant on overtime and Saturdays in an effort to meet demand for the Focus.

General Motors had planned to add a third shift in September to its small-car plant in Ohio, but recently moved the start date up to August.

A Toyota spokesman said the Japanese automaker was limited by production to selling 175,000 Priuses in the United States this year, no matter how hot the demand.

Honda Motor will open a new plant in Indiana late this year that will increase its output of Civics by 200,000 a year. The automaker has already increased production of the car at factories in Ohio and Canada.

“Even though we’ve got more vehicles in the pipeline than ever before, we didn’t expect to sell 53,000 Civics in May,” said a Honda spokesman, Edward K. Miller.

Dealers say that sales have been constrained based on availability. “Most of the Civics and hybrids are coming in already sold,” said John Rooney, the new-car sales manager at Pearson Honda in Richmond, Va. “Generally, right now people are waiting a couple of weeks or a couple of months for these vehicles.”

Honda has doubled its allocation of Fit subcompacts for the American market to about 80,000 vehicles a year, Mr. Miller said.

Still, consumers are finding the supply tight. Bob DiGiacomo, a schoolteacher in Fogelsville, Pa., put down a deposit on a Fit four weeks before the model he wanted became available. To get it, he drove 90 minutes to a dealership in Philadelphia.

“Gas mileage was a big factor for us buying the Fit,” he said. “The money I’ll save on gas in a year will pay for insurance on the car.”

Auto executives have been startled by the rapid shift this year by consumers from bigger vehicles like pickups and S.U.V.’s into small cars and lightweight crossovers.

Small cars now account for more one in five vehicles sold, and the numbers are rising. Less than a decade ago, the percentage was one in eight.

While some automakers — Honda, for example — have flexible plants that can shift productions from minivans or crossovers to cars, the factories of Detroit automakers are limited to specific models.

So while Ford has shut down its big S.U.V. plant in Wayne, Mich., for nine weeks because those vehicles are not selling, its nearby Focus plant is running extra hours.

“This seismic shift in the marketplace has definitely taken us and everybody else by surprise,” said George Pipas, Ford’s market analyst.

Mr. Pipas said that Ford currently has a 20-day supply of Focuses nationwide, well below the 60-day supply that is considered the industry norm.

The automaker, based in Dearborn, Mich., is drafting a major overhaul of its manufacturing plans in North America to address the shift to smaller cars.

But for now, it has a red-hot product in the Focus, and not enough production to meet demand.

Original here

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