Small Cars Get More Expensive, Harder to Find

GMIt’s basic economics: High gas prices plus parts shortages out of earthquake-damaged Japan equals car shortages and higher prices.

Dealers and experts say already-tight supplies of small cars will shrink even more in coming weeks, especially from Japanese automakers, as the fallout from the March 11 earthquake and rising demand for more fuel-efficient cars continues depleting dealer stocks.

That means that while consumers might find the car they want, they might not find it in the exact color and with the exact options they desire, such as a sunroof or a navigation system. They’ll likely be paying more for it, too.

How bad is it?

A healthy level of car inventory is considered 60 days’ worth, but many automakers have half that amount, especially of the most popular models.

Ford has just 31 days of the Fiesta, the most-popular subcompact on the market last month. “If we run another month this way, then it gets really serious,” said Bob Page, owner of a Toyota store in Southfield, Mich.

The shortage led car incentives to decline 15 percent last month. Toyota, Ford and General Motors have already said they are raising prices. That, of course, will improve the profitability of small cars, which now account for one-fourth of all vehicle sales.

At the same time, Detroit automakers, which are less affected by the parts shortage, now have an even bigger opportunity to break into the small-car market, as they’ve been doing. GM and Ford both have two models at the top of the small-car lists.

So far, General Motors and Ford are gaining from the small-car shortage that has hit Japanese automakers particularly hard, but Hyundai and Kia are the biggest short-term winners.

As a result of tighter inventories, consumers will pay more as stronger demand ? especially for small cars and crossovers ? enables nearly every automaker to cut rebates and other marketing lures. Industrywide, incentive costs fell by $370 per vehicle in April, according to Autodata. Shoppers also may not get their first color choice because one of the Japanese suppliers most damaged in the March 11 earthquake and tsunami made pigments for automotive paints.

But the disaster’s aftermath is changing the competitive landscape, at least for now. With Japanese automakers running the lowest on cars, many consumers are turning to U.S. and Korean models.

A 60 days’ worth of supply is considered healthy for automakers, but many companies have half of that, especially of the most popular models. According to, here’s where automakers’ stocks for cars stood at the end of April: 22 days at Hyundai, 29 at Kia, 34 at Honda, 39 at Toyota, 40 at Ford, 46 at Chrysler, 48 at General Motors and 56 at Nissan.

The shifts in April were noticeable. GM’s share of the U.S. car market jumped 2 percentage points, to 9.4 percent. Ford’s share grew by a half percentage point, even as it discontinued its Mercury line. While Chrysler stayed flat, most Japanese automakers lost car share. The most dramatic decline came at Toyota, which lost 1.6 percentage points. Honda and Nissan each lost about half a percentage point.

Korean automakers Hyundai and Kia, meanwhile, gained a combined 1.7 percentage points of car share in April.

But the Detroit Three also are feeling the pinch on inventories, too. Inventories of the Ford Focus and Fiesta, Chevrolet Cruze and Dodge Caliber are about half the 60-day level considered normal.

And though most brands are affected to some degree, Toyota dealers are begging for certain models.

“There is no question that the pipeline is going to definitely get a bit thin,” said Bob Page, owner of Page Toyota in Southfield.

In April, Toyota took orders for about 1,650 cars and trucks for its four-state Midwest region; a typical monthly allocation is 7,000 to 8,000, Page said.

Toyota division General Manager Bob Carter said last week that Toyota’s inventory is in better shape than he expected, given plant shutdowns following the March earthquake.

Stocks of the Prius hybrid are at 10 days’ supply, near the lows reached during the summer 2008 gas-price spike. Lexus dealers have only 23 days’ supply of the RX 350 crossover. Toyota has suspended production at its North American factories on Mondays and Fridays through June 3 and is running at half its pre-earthquake level on Tuesdays, Wednesdays and Thursdays.

Output from Toyota’s Japanese factories has resumed but remains below pre-earthquake levels. The company has said that car production won’t return to normal volumes until November or December.

Page said Toyota officials have told dealers that availability of new vehicles could return to normal levels by June. Until then, Toyota has slashed incentives, making it difficult for dealers to compete on pricing.

“With the exception of Camry, there really are no incentives,” Page said.

Hyundai, which is largely unaffected by parts disruptions caused by the earthquake in Japan, is simply struggling to make enough cars for the U.S., said Dave Zuchowski, Hyundai’s executive vice president of sales.

That’s partly because there has been an increase in demand for Hyundai cars, given the shortages at Toyota and Honda. Now, Hyundai dealers have about two weeks’ worth of the new Elantra. Inventory of the Nissan Sentra was at 21 days’ supply at the end of April.

Zuchowski said Hyundai is shipping enough cars to dealers to sustain its sales pace in May, but is worried about the summer, when gas prices generally rise.

Detroit automakers may be there to meet customers’ needs.

In May 2008 ? the last time gas prices surged past $4 per gallon in the U.S. ? Honda sold 53,299 Civics, making the Civic the first passenger car in many years to unseat Ford’s F-Series pickup as the top-selling vehicle.

Now, the Chevrolet Cruze and the new Ford Focus are competing more effectively against cars such as the Civic and Toyota Corolla.

Meanwhile, both Hyundai and Kia also have a strong lineup of fuel-efficient cars with improved quality.

Source: McClatchy-Tribune Information Services.