By Anne Steele
Poor weather conditions modestly dented the pace of U.S. auto
sales in February, but did little to sour America's increasing
thirst for the trucks and SUVs that tend to be pricier than
passenger cars.
Several auto makers posted lower-than-expected volumes in
February, but light-vehicle sales topped 1.2 million during the
month, at least 5% higher than the same period in 2014, according
to initial estimates. General Motors Co. and Toyota Motor Corp.
were among the standouts, reporting 4.2% and 13.3% gains,
respectively.
Importantly, buyers are continuing to move to the heavier
vehicles that had fallen out of fashion when high gas prices and
weaker economic conditions weighed on consumers near the end of
last decade. In January, sales of light-trucks--buoyed by low fuel
prices--represented 54% of the market, a mark the industry hasn't
touched on an annual basis since 2005.
Most industry observers expect that trend to hold because as
long as gasoline prices remain relatively low SUVs such as the
Chevrolet Traverse will continue to replace vehicles like the
Toyota Camry as America's ideal family vehicle. Light trucks tend
to achieve lower fuel economy than passenger cars, so the move is
creating headaches for regulators trying to enforce more stringent
fuel-economy standards.
Auto makers, however, aren't complaining. The light-truck
segment--which includes SUVs and many so-called crossover
wagons--generally commands higher prices than cars. Ford Motor Co.
sales analyst Erich Merkle said Tuesday the flight to SUVs will
only accelerate because baby boomers and young buyers are "more in
need of utility."
Alyssa Fall, a 23-year-old loan processor from Valencia, Calif.,
traded in her 2014 Kia Optima hybrid sedan in February for a 2015
Ford Escape SUV. Ms. Fall and her husband Drew are expecting their
first baby in July and their 80-pound German shepherd puppy can't
fit in the back of a passenger car.
"It just wasn't happening in the Kia Optima," Ms. Fall said. The
Escape is "a lot bigger than anything we could have hoped for."
The Falls took advantage of the Presidents Day sale at Galpin
Ford, combining a trade-in deal and low lease price to keep monthly
payments low.
Buyers like the Falls are helping the overall industry drive up
transaction prices in the U.S. auto industry. The combination of
more trucks and SUVs and higher sales of luxury cars led
transaction prices of new light vehicles to a new monthly record of
$33,229, up 4% compared with the same period in 2014.
Auto makers like Ford have helped making buying an SUV more
acceptable. The Escape for instance, is built on the same basic
architecture as the Focus compact car, but it is roomier and more
utile. Buyers pay a premium for capability: the base price of a
Focus is $17,700. while an Escape SUV carries a $23,000 base
price.
In February, Ford's transaction prices were up 5%, Mr. Merkle
said. At GM, transaction prices were up $2,668 at $34,682 due to a
36% increase in truck sales and sizzling demand for its SUVs,
including the GMC Yukon and Cadillac Escalade.
Higher transaction prices are good for auto makers, allowing
them to book bigger profits in North America at a time when key
emerging markets, notably Brazil and Russia, are slumping. However,
as buyers take on bigger payments, they also take on more risk.
Mark Wakefield, a partner at management consulting firm
AlixPartners LLP, said consumers are increasingly using long-term
loans, with terms of seven years, or leases subsidized by the auto
companies to offset the pain of higher transaction prices. So,
while people aren't feeling an immediate pain in monthly payments,
they are feeding a potential bubble.
"It's risky because of the used price," Mr. Wakefield said. "If
a lot of used supply comes online it's going to bring down prices,"
and that will put buyers in a negative equity position for years,
and leave banks and auto-finance arms funding the leases in a bad
position.
Overall, Ford's sales fell 2% in February amid a decline in
demand for passenger cars and production changeovers for key
models, including the F-150 truck and Edge crossover SUV. Fiat
Chrysler Automobiles NV and Nissan Motor Co., two of the hottest
players in the U.S., both posted sales that missed expectations.
Chrysler, relying on Jeep's breakneck sales gains, saw its sales
increase 6%, while Nissan sales grew 2.7%. Honda Motor Co. sales
grew 5% compared with February 2014.
Chelsey Dulaney and Mike Ramsey contributed to this article.
Write to Anne Steele at anne.steele@wsj.com
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