SUV sales tank as gas soars

Greg Keenan
Globe and Mail
Tuesday, October 4, 2005

Gas guzzlers stay on lots as auto makers report big decline in luxury 4WD category

Soaring gas prices sent sales of sport utility vehicles into the tank in North America last month.

Sales of the biggest SUVs tumbled as hurricanes Katrina and Rita and fears of gas shortages sent fuel prices soaring to well above $1 a litre across most of Canada and $3 (U.S.) a gallon south of the border.

"These ultra high gas prices are taking a toll on the larger, less fuel-efficient light trucks," said industry analyst Dennis DesRosiers, who heads DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont.

The slide hit large SUVs in particular. Sales in that category, which includes such behemoths as Dodge Durango, Ford Expedition, GMC Yukon and Nissan Armada, slumped 50 per cent last month in Canada from year-earlier levels, according to data released by the auto makers yesterday.

That compares with an overall decline of just 2.4 per cent in the Canadian vehicle market last month.
The market also suffered from the end of discount programs at some auto makers that allowed consumers to pay the same price as employees for their new vehicles.

The SUV slide may, however, be a regional phenomenon.

"Out here, [gas prices] are not top of mind," said Ted Knight, who owns Crestview Chrysler Dodge Jeep in Regina as well as dealerships elsewhere in Saskatchewan and in Medicine Hat, Alta.

"It's not anywhere near what I thought it would be," Mr. Knight said. "We're selling Durangos, we're selling Grand Cherokees."

But even sales of luxury SUVs, which have held up in the face of higher gas prices, took it on the chin last month.

Sales of Ontario-made vehicles such as the RX330 for Toyota's luxury Lexus division slumped 17 per cent in Canada.

It was a similar story for the Chrysler Pacifica, which is built in Windsor, Ont. It slumped 24 per cent in the U.S. market.

Last month, sales of the Toyota Sequoia fell 30 per cent, to 38 units from 54, and sales of Chrysler's Dodge Durango plunged 64 per cent to 249 from 698.

Overall, sales in Canada fell to 124,175 vehicles, from 127,233 in September of 2004.

Each of the Big Three reported a drop, with Ford and GM noting large declines in truck sales.

At DaimlerChrysler Canada Inc., car sales fell, while truck sales rose, sparked by a big jump in sales of minivans.

Carlos Gomes, a Bank of Nova Scotia economist, said high gas prices packed a double whammy for auto makers.

First, they put a dent in sales of SUVs and other light trucks last month.

Sales of all light trucks -- which include minivans, so-called crossover utility vehicles that are based on a car chassis instead of a truck chassis and actual trucks -- fell about 10 per cent in Canada.

High gas prices, Mr. Gomes said, also dampen consumer confidence, which is a key driver of vehicle sales.

He acknowledged that the mood of consumers is likely more buoyant in provinces that benefit from high oil prices such as Alberta, than it is in Ontario and Quebec, which are the biggest markets for new vehicles.

The percentage declines in sales of large SUVs were similar in the U.S. market, where they represent a much larger and more important slice of the overall market than they do in Canada.

Sales of SUVs and trucks slumped 50 per cent for General Motors Corp., while Ford Motor Co. saw sales of traditional, truck-based SUVs tumble by the same amount.

This is another blow to Ford and GM, because they rely heavily on highly profitable SUVs to make up for money-losing passenger car operations.

The two largest U.S. auto makers are already reeling, with massive losses in their North American automotive operations caused in part by years of sliding market share.

Ford is preparing a major financial restructuring that is expected to be unveiled this month and include several plant closings and thousands of job cuts in the United States.

GM is in the midst of negotiations with the United Auto Workers union south of the border on ways to trim the auto maker's soaring health-care costs.

A switch to more fuel-efficient vehicles benefits Asia-based auto makers, which have already grabbed more than 50 per cent of the passenger car side of the market in both Canada and the United States.

"It's history repeating itself," said Thomas Leritz, an investment manager with Argent Capital Management in Clayton, Mo. "You go back to the seventies, during those oil shocks the Japanese took market share."

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Best headline in a long time ... Arthur