September 13, 2009 in Business

Car buyers downsizing

Shift to smaller vehicles may be a permanent move
Tom Krisher Associated Press
File Associated Press photo

Tony Balster, of Victory Auto Wreckers, loads a car from the cash for clunkers program at NorthSide Toyota Dealership in Chicago. The popularity of the federal government’s cash for clunkers program this summer showed that Americans will embrace small if they’re being budget-conscious.
(Full-size photo)

ANN ARBOR, Mich. – Big cars and trucks are out. Smaller ones that offer more for your dollar are in. And many drivers will hang on to the new cars they buy longer.

Scarred by the worst financial crisis since the 1930s and still leery of high gas prices, people are walking into showrooms intent on spending less. The trend is strongest among baby boomers, who are 44 to 63 years old and make up a quarter of the population, dealers and industry analysts say.

A generation ago, boomers drove the economy out of the second-worst recession since World War II. But their investments and home values have taken a hit. And with time running out until retirement, economizing on the second-biggest purchase most people make has become common.

“Up until now it’s ‘I want bigger and more than I had last year,’ ” said Jerry Seiner, who owns several GM franchises in the Salt Lake City area. “This has been the biggest awakening of the United States population since the Great Depression.”

Ford’s top sales analyst, George Pipas, describes the shift as one from “conspicuous consumption” to “careful consumption.”

To a degree, the shift has been forced on consumers. The Great Recession ended the days of easy credit, which propelled car and truck sales most of this decade. During the boom years, almost anyone qualified to buy a new vehicle. Zero percent financing on purchases and cut-rate deals on leases kept monthly payments low and encouraged people to trade every three or four years. Sales ballooned to record numbers of about 17 million vehicles a year in the first half of the decade.

Today, loans are harder to get and come with higher payments. About 60 percent of buyers finance a new car, and many no longer qualify for luxury models – or want big monthly payments.

So many drivers will keep running up their odometers and scale back when they do buy, continuing to push down sales of large cars, sport utility vehicles and luxury brands. A poll taken in April by research firm AutoPacific found that 59 percent of recent buyers will keep their cars four years or more, up from 46 percent in 2008. It’s easy to keep a vehicle longer because of improved quality.

The trends suggest annual vehicle sales will stay close to this year’s 10 million level instead of rebounding to mid-decade levels. It was the collapse of the sales rate to as low as 9.57 million in January 2009 that pushed GM and Chrysler into bankruptcy reorganizations financed by the federal government, leaving Uncle Sam with a controlling stake in GM and as broker for Fiat’s takeover of Chrysler. Even mighty Toyota, which has done relatively better than most, posted the biggest loss in its history in its last fiscal year.

“I think caution will be with us for a while,” said Martin Zimmerman, a former Ford Motor Co. chief economist who now teaches at the University of Michigan. “That will color people’s willingness to go out and buy houses or buy cars.”

Small cars made up just 12.6 percent of the market in 1998, but that has grown to 21.1 percent, according to Ward’s AutoInfoBank. The popularity of the federal government’s cash for clunkers program this summer showed that Americans will embrace small if they’re being budget-conscious or if they get a good deal. In August, the last month of the program, sales of the smallest domestic cars tripled from a year earlier.

© Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email