Comfort Cravers, Price Purchasers Emerge in Downsizing Divide
August 18, 2008
By Dale Buss
As they rapidly switch to smaller vehicles, American consumers are streaming into two camps: those who want to hold onto their automotive accoutrements -- and those who are just looking for a cheaper ride.
"There are two trends out there," said Mark Perry, director of product planning for Nissan North America. "Some consumers are giving up some size but want to hang onto amenities they got used to. Others are just looking for very basic, maybe no-frills transportation that is fuel-efficient. These are competing consumer behaviors, and I'm not sure which will outweigh the other."
How the two trade-down trends ultimately reconcile will affect everything in the industry from product planning to pricing to marketing. Some suggest this is a major sign that the U.S. market is quickly evolving into something similar to Europe, where highly contented though small cars reign.
But because the current shift toward smaller and more fuel-efficient vehicles has been precipitous, OEMs already have been adjusting to them on the fly as much as possible.
"With an industry running at only 12 million to 13 million [annual sales rates] now, it's even more important to have the right vehicle at the right price at the right time," Perry said. "Stale inventory is a problem because it costs you lots of incentive money. So everybody is studying this hard."
Portable Comfort
At least fairly distinct identities already have emerged for the two groups currently trading down and bloating the market for small- and mid-size cars and light SUVs.
Let's call the first one Comfort Cravers. These are the fast-growing ranks of large- and luxury-vehicle owners who have decided to downsize in the interests of fuel economy but want to "content" their new purchases as much as possible and are willing to pay the price of doing so.
"These people include many boomers who are in their peak earning years and have become accustomed to leather seats and higher levels of trim, moon roofs, audio systems and navigation systems," said George Pipas, Ford's head of U.S. sales analysis.
In any event, many of these downsizers are moving into mid-size sedans from large cars and SUVs. "They're holding onto their satellite radio and whatever else makes them smile," said Steve Bartoli, Chrysler's vice president of global product marketing. "They may be even moving up a bit in content."
Navigation, Bluetooth, HID headlights and other "options that were once seen as luxury-car-only are becoming more common on compact cars," noted Ivan Drury, pricing and industry analyst for Edmunds.com. "As long as automakers are willing to supply the same type of equipment in a smaller package with better fuel economy, buyers won't need to sacrifice conveniences in their search for higher gas mileage."
Featherbedding Malibu
General Motors is seeing the Comfort Cravers' impact in the changing profiles of buyers of
the Chevrolet Malibu and Pontiac G6 midsize sedans. Typically, those who bought the four-cylinder models of these vehicles were happy with a base content level; only buyers of the six-cylinder engine wanted to add a lot of bells and whistles.
"But now we're seeing that the people who are getting four cylinders in these vehicles don't' want to give up the creature comforts," said GM spokesman John McDonald.
Granted, the Malibu is a brand-new model this year and has generated more interest in general from upscale buyers than did the rather utilitarian version it replaced. But McDonald nevertheless believes it's significant that, for example, nearly 50 percent of recent Malibu four-cylinder buyers have requested the remote-starting option, compared with only about five percent a year ago.
Similarly, nearly 20 percent of Malibu four-cylinder buyers are purchasing sunroofs, compared with significantly fewer than 10 percent a year ago. Adjustable gas pedals now are requested in more than 40 percent of four-cylinder Malibus, versus just five percent a year ago. Heated seats: more than 20 percent now compared with less than five percent a year ago.
Hyundai is observing higher take rates for safety features such as anti-lock brakes on smaller models such as its Elantra. "Customers are looking at these attributes more because they want vehicles that are as safe as a much larger car," said Tim Benner, manager of national product development for Hyundai USA.
Electronics a Key
Ford is recognizing this phenomenon in the high numbers of buyers of Focus subcompacts who insist on including the heavily marketed Sync electronics system. Meanwhile, packages including Bluetooth connections and upgraded audio systems in the Versa subcompact "are just flying off the shelf," said Nissan's Perry.
And Honda is seeing the preferences of Comfort Cravers show up in the five-percent penetration of factory navigation systems in its Civic subcompact since the option was added in 2006 as well as in high take levels for the leather-seating option that Honda added for Civic with the current model year.
"When consumers see that some of our vehicles in the compact and subcompact segments have these features, they feel more comfortable about making that move," said William Walton, manager of product planning for American Honda's car line.
Comfort Cravers' swelling presence among downsizers also plays well with small-car nameplates that have made reputations for being better than basic. "People know when they come to Volkswagen that even our base Jetta is a lot of car," said Andres Valbuena, a product manger for Volkswagen of America. "There is no stripper version; it starts with air conditioning and cruise control and safety features."
The Other Group
But a group that might be called Price Purchasers -- the other prominent strain among downsizing consumers -- are exerting a huge pull on the market as well.
These people often are downsizing for reasons beyond high gas prices alone; in today's shaky U.S. economy, many Price Purchasers are seeking inexpensive vehicles for general financial reasons as well. This camp also includes consumers who are merely staying in the small-car segment rather than trading up as American car buyers traditionally have done.
"If gasoline is costing you $100 a week when it may have cost you $50 a week before, and you're not seeing a raise, something has got to give in many households," Perry said.
For most consumers, merely switching to more fuel-efficient vehicles can't offset other rising economic pressures. "If you drive 15,000 miles a year, the difference in fuel savings between a C- and D-class vehicle is about $25 a month," explained Chrysler's Bartoli. "But these are pretty inflationary times. Bread and milk, for example, are also more expensive, so $25 doesn't go very far."
Such consumers join the ranks of Price Purchasers, not Comfort Cravers. "They're not going to stretch themselves," Bartoli said. "Someone in financial stress isn't going to say, 'That car is cool, but let's add fog lamps and performance tires.'"
Uncertain Future
While these trends remain highly volatile, so far the collective effects exhibited by emerging groups of Price Purchasers and Comfort Cravers basically seem to be offsetting each other.
So, for instance, Ford's Pipas noted that Focus was fetching an average of $2,000 more than the old model at the same time last year, as of late June - attributable to greater overall demand but also to Comfort Cravers' desires for more content.
"This is a significant increase that hasn't deteriorated," said Jim Farley, Ford's executive vice president of marketing communications. "It's led by features such as Sync, and also a mix where there's more movement to high-end models such as SES. As people trade down, they don't seem to be trading down in specification levels."
At the same time, however, Toyota is "seeing very little change right now in contenting" of its hot-selling small cars including Corolla, Matrix and Yaris, said Ed LaRocque, Toyota's national small-car marketing manager.
And while upgrading of small cars in terms of accessories and content is far above the levels of even five years ago, so far this year it has actually dipped a bit compared with 2007, as measured by how far transaction prices are above the median-priced model in a range of vehicles, according to CNW Research, in Bandon, Ore.
"The market is moving [toward more content] but consumers aren't equipping small cars with as many accessories as in larger cars, even as they move toward more small cars," concluded Paul Taylor, chief economist for the National Automobile Dealers Association.
Short-Term Moves
In the coming months, the trend in the overall U.S. economy is likely to make the prevalence of either Comfort Cravers or Price Purchasers more definitive. In the meantime, OEMs are scrambling to interpret and react effectively to emerging patterns.
GM, for instance, seems to be counting on somewhat of a continuation of higher content of small cars as it begins 3.5-percent price increase for hew models. "Increasing content in [GM] vehicles is going to drive revenues, but consumers are willing to pay for it," said GM spokesman McDonald. "In the past, we were more likely to discount or not charge at all [for certain features] to improve our market penetration. But now there's a market for it."
Honda is "discussing volumes with our executives to see if we need to expand or add any additional trim levels in the future," said the company's Walton. Nissan is trying to figure out how to take advantage of the fact that it expects "navigation systems to transition down" to smaller models, as Perry put it, at the same time that the company tries to reduce the complexity of its U.S. vehicle lineup by shrinking the number of available versions of each model.
Automakers also are pushing new features to market as a way to pique new interest in vehicles and revitalize profit margins in a much less expensive way than developing and introducing completely new vehicle models. Thus, for example, Chrysler recently announced that it is making wireless internet service an option on all of its 2009 models through a mobile hotspot called "UConnect Web" - which would be the first such step by any automaker.
'Entry-Car Prestige'
And Hyundai plans to begin selling in 2010, in North American vehicles, a new music and information system that is being designed by Microsoft - promising a step up from the Sync system fielded by Ford. Ford's exclusivity on the Microsoft technology underlying the Sync system expires later this year.
Hyundai also is among OEMs that is taking a close look at how to better leverage its
presence in the base-model entry-car derby. The company's Benner believes that new-production introductions during the next couple of years will demonstrate that "econoboxes are no longer what entry-level cars represent." Examples, he said, include the new version of the Honda Fit, which will offer a navigation-system option, and the Chevrolet Beat announced by GM.
Such new models reflect the fact that, as Benner insisted, even base-level small cars "are becoming amazingly emotional to buyers. The idea of entry-car prestige is emergent." In response, he said, Hyundai has its own plans for "an entry-level product that is amenable to buyers' needs for bells and whistles.
"Our target approach is to have a base-level price but with prestige, emotion and high design around it."
Photo by manufacturers
1 - The BMW 135i packs luxury and sport into a small, pricey package.
2 - Chevrolet Malibu buyers have upped the content but opted for fewer cylinders.
3 - The 2009 Fit adds features to its diminutive dimensions.
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