The preliminary figures for vehicle sales in September are out and they were not as good as the August numbers. Sales were flat for Ford Motor (NYSE: F) and sales at General Motors (NYSE: GM) were only up 1.5%. Sales at Chrysler, majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY.PK), motored ahead in September at a 12% rate.
The most interesting aspect of the sales figures for Detroit's Big 3 is the fact that all three companies boasted about their fast-growing sales of smaller models of passenger cars. This is almost unheard of in the United States, famous for its gas-guzzling SUVs and pickups.
General Motors said its sales of mini, small and compact cars were up 97% from the year ago period. Ford reported small car sales jumped 73% from a year ago, to a record for the past 10 years. Meanwhile, Chrysler's Dodge Dart sales rose 72% from August and sales of the Fiat 500 subcompact climbed 51% year-on-year.
These sales reports are outstanding. But does it represent the beginning of a long-term trend? Thanks to high fuel prices, is America finally moving away from driving gas guzzlers?
If so, the Big 3 automakers will have to learn to adjust. After all, with smaller cars you have smaller profit margins. That is why they largely abandoned the field to foreign competitors, concentrating instead of high-margin larger vehicles.
One way the automakers are coping with possible tighter profit margins on small cars will not make most Americans happy. They are shifting production to places like Mexico. Ford makes it Fiesta model in Mexico. Fiat manufactures its Fiat 500 for the U.S. market also in Mexico. GM should be commended though. It does manufacture the Chevrolet Sonic, the smallest passenger car mass produced in the U.S., at its plant in Lake Orion, Michigan. It copes with small profit margins by trying to shorten the supply chain by moving actually moving suppliers in-plant.
Of course, one big plus that U.S. automakers have in their corner is that they have moved toward using global platforms for the production of many of their vehicles. That is, auto manufacturers build many vehicle models atop the same architecture. So Chevy's Sonic is built on the same platform as Opel in Europe and Ford's Fiesta is built on the same platform as vehicles in Europe. This is a real cost saver in the long run for automakers.
But the question still remains whether U.S. consumers are ready to switch to smaller vehicles permanently. The answer is probably as it has always been in the past . . . no. As soon as the price of fuel starts falling again (if it ever does), Americans will rush back into driving their favorite gas guzzlers.
Right now, according to Edmonds.com, compact and subcompact cars account for 21.5% of the U.S. car market versus 24.6% for SUVs. The two numbers will likely only reverse if gasoline climbs to over $4 a gallon and stays there.
This article originally appeared on the Motley Fool Blog Network. Be sure read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Showing posts with label fiaty. Show all posts
Showing posts with label fiaty. Show all posts
Wednesday, October 10, 2012
Tuesday, September 11, 2012
New US Vehicle Fuel Standards Off Target
The Obama Administration has announced that it is adopting new rules concerning vehicles' fuel efficiency. The Administration will demand a near doubling of the Corporate Average Fuel Efficiency Standards (CAFE) by 2025. Automakers will have to improve the overall fuel efficiency of their fleet from 27.5 miles per gallon to 54.5 miles per gallon by 2025, saving the United States a supposed 2 million barrels of imported oil a day.
Also included by the Obama Administration are incentives for the introduction of natural gas-powered vehicles in addition to further incentives for both all-electric and hybrid vehicles. It remains to be seen whether these incentives for electric vehicles work any better than previous ones as electric cars have been a tough sale to the consuming public.
Automakers including General Motors (NYSE: GM), Ford (NYSE: F), Toyota Motor ADR (NYSE: TM) and Chrysler – majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY.PK) will all be affected by the new rules. General Motors and Ford, for example, are launching major initiatives to drop the weight of their cars, all with goal of improving their fuel economy. Toyota is developing hydrogen-powered vehicles which, if successful, will easily allow them to meet the new standard. In addition, automakers are downsizing their engines. The V8 used in cars like the Dodge Charger, in the words of Chrysler chairman Sergio Marchionne, will become “as rare as white flies”.
Eleven of the major automakers, including those mentioned above, have all publicly “endorsed” the standards put forth, perhaps happy that now these nationwide standards will avert California setting its own even tougher standards. But privately, executives at some leading automakers are warning that these new standards will distort the U.S. vehicle market and will likely not deliver the projected reductions in overall fuel demand.
The most outspoken automaker, which has not not endorsed the new fuel standards, is Germany's Volkswagen AG ADR (NASDAQOTH: VLKAY.PK). It rightly points out that initially the standards do not demand as much improvement from gas guzzlers like SUVs and pick-up trucks than from smaller cars, which are already fuel efficient. The regulations count these vehicles as 'trucks' which are subject to less stringent requirements.
This in effect penalizes companies that concentrate on passenger cars like Volkswagen. In addition, the new fuel standards may have a perverse effect on fuel consumption by having some vehicle makers pushing sales of fuel-inefficient pick-ups and SUVs at the expense of other smaller, fuel-sipping vehicles. Also companies that have fuel-saving technology such as clean diesel receive no extra credits under the rules. There are substantial credits for hybrid technology and “stop-start” technology which turns engines off even when vehicles are stopped for a moment.
Even supporters of the new regulations have their doubts about them. The vice-president of technical and regulatory affairs at Toyota Motor North America, Tom Stricker, told the Financial Times “Whether or not they will lead to the level of reductions and improvements that the regulations hope and expect is an open question.”
That is an understatement. Without tough regulations on SUVs and pick-up trucks, what is the incentive for automakers to switch to producing fuel-efficient cars or for Americans to switch away from driving their gas guzzlers? Look for sales of big Ford and GM pick-ups to continue unabated in the years ahead, albeit with smaller engines.
Also included by the Obama Administration are incentives for the introduction of natural gas-powered vehicles in addition to further incentives for both all-electric and hybrid vehicles. It remains to be seen whether these incentives for electric vehicles work any better than previous ones as electric cars have been a tough sale to the consuming public.
Automakers including General Motors (NYSE: GM), Ford (NYSE: F), Toyota Motor ADR (NYSE: TM) and Chrysler – majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY.PK) will all be affected by the new rules. General Motors and Ford, for example, are launching major initiatives to drop the weight of their cars, all with goal of improving their fuel economy. Toyota is developing hydrogen-powered vehicles which, if successful, will easily allow them to meet the new standard. In addition, automakers are downsizing their engines. The V8 used in cars like the Dodge Charger, in the words of Chrysler chairman Sergio Marchionne, will become “as rare as white flies”.
Eleven of the major automakers, including those mentioned above, have all publicly “endorsed” the standards put forth, perhaps happy that now these nationwide standards will avert California setting its own even tougher standards. But privately, executives at some leading automakers are warning that these new standards will distort the U.S. vehicle market and will likely not deliver the projected reductions in overall fuel demand.
The most outspoken automaker, which has not not endorsed the new fuel standards, is Germany's Volkswagen AG ADR (NASDAQOTH: VLKAY.PK). It rightly points out that initially the standards do not demand as much improvement from gas guzzlers like SUVs and pick-up trucks than from smaller cars, which are already fuel efficient. The regulations count these vehicles as 'trucks' which are subject to less stringent requirements.
This in effect penalizes companies that concentrate on passenger cars like Volkswagen. In addition, the new fuel standards may have a perverse effect on fuel consumption by having some vehicle makers pushing sales of fuel-inefficient pick-ups and SUVs at the expense of other smaller, fuel-sipping vehicles. Also companies that have fuel-saving technology such as clean diesel receive no extra credits under the rules. There are substantial credits for hybrid technology and “stop-start” technology which turns engines off even when vehicles are stopped for a moment.
Even supporters of the new regulations have their doubts about them. The vice-president of technical and regulatory affairs at Toyota Motor North America, Tom Stricker, told the Financial Times “Whether or not they will lead to the level of reductions and improvements that the regulations hope and expect is an open question.”
That is an understatement. Without tough regulations on SUVs and pick-up trucks, what is the incentive for automakers to switch to producing fuel-efficient cars or for Americans to switch away from driving their gas guzzlers? Look for sales of big Ford and GM pick-ups to continue unabated in the years ahead, albeit with smaller engines.
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