Automotive News - June 2, 2008 - (Page 55)

JUNE 2, 2008 • 55 Smaller gets bigger As fuel prices have jumped this year, sales of smaller cars have risen while sales of bigger vehicles have declined. 800 700 600 500 400 300 200 100 0 U.S. new-vehicle unit sales Diesel prices hit suppliers’ Mexico sites Lindsay Chappell lchappell@crain.com Compact Mid-sized basic conventional Jan-April 2007 Large pickup Mid-sized van Large SUV Jan-April 2008 Source: Power Information Network – J.D. Power and Associates 4 is enough Consumers now prefer vehicles with 4-cylinder engines to 6- or 8-cylinder cars and trucks. 50% Percentage of U.S. retail sales for March-April 6 cyl. 40% 30% 20% 4 cyl. 8 cyl. 10% 0 '03 '04 '05 '06 '07 '08 Suddenly, Mexican plants look less attractive. A double-digit jump in diesel fuel prices is walloping North America’s auto suppliers, leading to a review of plant locations and inventory practices. Midwest truck stop pumps were charging $4.72 a gallon for diesel last week, compared with about $2.82 a year ago. In California, truckers paid $5.02 a gallon. Freight haulers are passing along the increase through hefty fuel surcharges. Suppliers have little recourse but to take the hit, shaving their operating margins even thinner. Around the industry, suppliers are seeing surcharges of 60 to 70 cents per mile to haul material and subcomponents into their plants. “We budgeted for transportation costs of $6.2 million this year,” says Peter Anthony, CEO of UGN Inc., a Chicago-based supplier of acoustic trim with plants in Illinois, Indiana, Kentucky and Tennessee. “It now looks like we will be at $7.5 million. That’s $1.3 million of bad news I’ve got to make up somewhere.” Source: Power Information Network – J.D. Power and Associates Spotlight on Mexico The fuel price surge is casting a glaring new light on business practices that just one year ago were considered advantageous. Among them: sourcing parts from Mexico. The increased cost of trucking goods hundreds of miles at a 60-cents-amile premium is eating away at the assumption that Mexico is a low-cost sourcing solution, Anthony says. “Mexico represented a 10 percent pure cost advantage,” he says. “Now it’s down to about a 4 percent advantage. We could probably leverage that much out of a local supplier.” Automakers already have demanded closer proximity. Nissan, Mercedes-Benz and Toyota have brought U.S. suppliers to within a few hundred yards — sometimes a few hundred feet — of their assembly lines. German supplier Stankiewicz GmbH recently dropped plans to expand a South Carolina acoustical component plant that would serve Mercedes-Benz in Vance, Ala. Instead, Stankiewicz is spending $16.4 million to build a second plant in Vance, near Mercedes’ doorstep. MICHAEL FOLEY/RYCUS ASSOCIATES Gas pains U.S. retail price of regular unleaded gasoline has nearly doubled since 2005. It’s all about the gas mileage,” says Ohio dealer Rhett Ricart. “It’s all people are buying. If they’re not getting gas mileage, they’re not interested.” $4.50 big-engine vehicles they take in trade. Last week, Kelley Blue Book said retail prices of used SUVs have declined 8 percent since last September. Price per gallon, last week of May GASOLINE Auto industry reels from soaring prices continued from Page 1 4.00 3.50 3.00 2.50 2.00 1.50 1.00 .50 0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Source: Energy Information Administration, U.S. Department of Energy Different pitch mileage,” Ricart told Automotive News. “It’s all people are buying. If they’re not getting gas mileage, they’re not interested.” The Detroit 3, which traditionally have relied heavily on truck sales, are taking action to avoid bulging inventories of unsold pickups and SUVs. Last month, Ford Motor Co. announced plans to slash truck production and build more cars. The company’s sales for the first four months of 2008 declined nearly 8 percent from the same period of 2007. “The die has been cast,” warns Ford’s Pipas. “We have reached an inflection point. The dramatic shifts we’ve seen in the last 60 days are due to the price of gasoline.” At the Automotive News Marketing Seminar last week in Los Angeles, Ford division’s general marketing manager, Mark Felice, noted that the redesigned Ford Fusion will debut this year with a 2.5-liter four-cylinder engine that gets 32 mpg on the highway. Said Felice: “Fuel economy has a big impact on consumer behavior.” General Motors, still the U.S. market leader, is feeling the pain, too. Sales of the full-sized Chevrolet Suburban SUV fell 25 percent in April compared with the same period a year earlier. Chevrolet Tahoe sales were down almost 30 percent. At the same time, sales of the compact Chevrolet Aveo rose 23 percent in April after losing ground in the previous three months. Out of stock Nearly 650 dealers took part in the unscientific Automotive News online survey last week. Two-thirds sell primarily Detroit 3 domestic brands. Of the Detroit 3 dealers, seven out of 10 say their stores lack the inventory to meet consumer demand for fuelefficient cars. Four-fifths say they have lost sales this year because they didn’t have the new vehicles their customers wanted. And almost threefourths say automakers are not giving them the mix of vehicles they need. Import-brand dealers, by contrast, are benefiting from relatively larger stocks of smaller cars. Only two-fifths of the import dealers in the survey said they lacked the right inventory to satisfy customers’ demands. “I’m looking out my window at 300 to 400 cars,” says John Hawkins, a Honda and Acura dealer in suburban Los Angeles. “There are no Fits. They sell as fast as we get them.” That’s no surprise. Sales of Honda’s imported Fit compact are up 68.7 percent so far this year. By contrast, many dealers now express fears they will be unable to resell Chris Shackelford, new-car sales manager at Jim Reed Chevrolet-Subaru-Isuzu-Hyundai in Nashville, says he has stopped ordering Tahoes and Silverado pickups. “And I definitely don’t want a Suburban,” Shackelford says of the model that was his biggest seller just six months ago. Cost chaos The upheaval caused by high gasoline prices is not confined to shifting product preferences. Rising fuel prices are affecting delivery of new and used vehicles to dealerships. CentralDispatch.com, an online service that links dealers to 5,000 trucking companies around the country, reported last week that vehicle hauling costs jumped 17 percent between February and April. Some dealers’ vehicle transportation costs have soared 30 percent in the past two months, says Joe Steinberger, CentralDispatch’s vice president of product and business development. In response, Steinberger says, many dealers are wholesaling used vehicles locally instead of moving them to distant auctions. Higher freight charges also are raising the cost of raw material shipments to factories, component shipments to assembly plants and parts shipments to dealerships. There’s some good news amid the turmoil, but it’s getting harder to find. Dealerships with the right mix of small cars and trucks can profit from the market shift. For example, sales of the Toyota Prius hybrid shot up 66 percent in April. But efforts by automakers to introduce fuel-efficient, diesel-powered vehicles may fall short. Next year, Nissan Motor Co. plans to introduce a diesel-engine Maxima in the United States. But as the price of diesel fuel approaches $5 a gallon, diesels may prove to be a risky investment. For now, the big trend is simply toward “smaller.”c Just-in-tighter Automakers are reconsidering justin-time deliveries, whereby goods arrive at a factory door only as they are needed. Honda Motor Co. is considering ways to fit more parts onto its trucks. That could mean that larger parts shipments will begin arriving at its assembly lines. Some inventory may have to be stored in holding areas, or it could mean transitioning to smaller delivery trucks. “If you open any trailer running on I-75, do you know how full it is?” said a Honda manager who asked not to be identified. “Sometimes visually 50 percent. So there is a bunch of room for improvement in this area.” c

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Automotive News - June 2, 2008 Gas prices fuel industry's new era Chrysler faces tricky dealer mergers Honda may crank out more Civics in N.A. Mercedes will move into Chrysler Pacifica studio Ford to offer hatchback version of Fiesta Prestige Automotive sells stores but keeps Black Enterprise top spot Dealership marketers take to text messaging Senate to hear personal pleas on roof crush rule Magazine: Chrysler, Fiat are talking Former Fla. dealer gets jail for bilking bank That guy Alfred had possibilities Ford will make next Mustang look smaller Pontiac subcompact may come to U.S. GM: Battery glitch cuts hybrid sales Porsche exec: CAFE 'will not change our nature' Japanese rivals race for lithium batteries Jatco boosts CVT capacity in Mexico for N.A. vehicles Mercury deserves a better chance Rising gas prices have changed the U.S. market Marketing and sales: Context and content Mexico's Nemak grows beyond North America Buyers didn't quit GM; GM quit on its buyers Brand perceptions change slowly Bloggers are journalists, too Nice HQ, Nissan, but where's Nobe? Chrysler's Chernoby: Growing up gearhead Picture this Mitsubishi hopes new gearbox widens Evo's appeal Openlane gets funds Obituaries Survey: Going green can get your auto ad noticed Inrix: Router can reduce traffic delays Mazda6 gets own platform for U.S. ... sort of Mazda6 set to take on mid-sized sedan heavyweights Troubled or not, the United States still beckons What's next? More transplant models headed this way Exports help as Mitsubishi sorts things out Irma Elder: 'This is one of the toughest times we have had' Fitzgerald: Dealers, consumers need alliance Can Bertone design a comeback? Family-owned business struggles for survival Some design houses fall on tough times Hughes: Not a subscriber? No problem American Axle lines up new non-U.S. business GM think tank works to boost service business Toyota offers gas card as tire incentive VW turns to common software to develop products Continental's Calif. office targets Asian carmakers ZF sees chassis, axle opportunities in N.A. Flex: A new Ford image ... or just over the top? Ford targeted Flex interior quiet, ride Ex-dealership managers say firings were over religion Dealers Genesis in Toledo: It's a long story Back woes sideline Nardelli GM: 19,000 take buyouts Panama to head Nissan Mexicana Wilhite jumps to Jumpstart Dauch sons move up, out Kozyra leaves Continental Ford to lay off salaried staff More small cars to arrive in 2009-10 Even on used market, big trucks go begging Auto advertisers adopt mpg mantra Industry to motorists: We're here to help Diesel prices hit suppliers' Mexico sites Can Camry catch F series? Leno's words of wisdom for automakers Nissan's carbon credits ease global warming guilt Automotive CEOs' pay pales next to peers' Year of the Small Car can't come too soon Foreign suppliers adding capacity in Southeast From cows to kimchi: Making Alabama sweet home for Koreans After light-truck push, cars are king again Mexican suppliers expect sales record in '08

Automotive News - June 2, 2008

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