December 20, 2001 (23)
Smaller, more fuel-efficient vehicles may gain buyers in next decade

ANN ARBOR---America's love affair with big sport-utility vehicles and trucks may be cooling down a bit, according to a new forecast by the University of Michigan's Transportation Research Institute (UMTRI).

While the U-M report shows little change in projected market share for passenger cars vs. light trucks (SUVs, pickups and minivans)—perhaps a 1 point increase for cars (from 53 percent to 54 percent) from 1999 to 2009—feedback from those surveyed in the study indicate potential growth in market share for smaller, more fuel-friendly vehicles.

"Given the recent success of many larger vehicles, the comments (from study participants) mark a significant shift in consumer buying trends," says Bruce M. Belzowski, a senior research associate at UMTRI's Office for the Study of Automotive Transportation (OSAT). "The coming decade will bring a large, highly affluent group of buyers into the market, buyers who are highly informed, environmentally aware, and who may not want to drive what their parents do. The current success of large/luxury SUVs could cause a backlash of sorts among these young buyers."

Belzowski says that automobile manufacturers are under increasing pressure to lessen the adverse environmental impact of their products—pressure that will likely encourage car companies to spend greater resources on the development of smaller, more fuel-efficient vehicles that increasingly meet the wants and needs of their customers.

"All companies are diligently working to develop alternative-fueled and alternative-powered vehicles, while maintaining their efforts to make the internal combustion engine more efficient and clean burning," he says. "Although these new powertrains may have important applications in increased-mileage SUVs, they may lead to the increased popularity of small, ultra-high mileage, environmentally friendly vehicles—both passenger cars and SUVs."

The potential trend toward smaller vehicles is one of the findings of the vehicle marketing volume of the 10th biennial U-M Delphi Forecast and Analysis of the North American Automotive Industry. The three-volume report is based on responses from more than 200 auto industry experts on trends in marketing, technology and materials through 2009.

According to the forecast, purchase price and lease terms will continue to be important factors for consumers buying either passenger cars or light trucks, followed closely by manufacturer incentives and rebates and dealer service.

In addition, factors such as quality, styling, manufacturer reputation, brand image and performance will continue to be top concerns for buyers of both cars and trucks. Fuel economy, safety and vehicle technology, however, will become more important for consumers of all types of vehicles through 2009.

"From the view of the vehicle itself, the rising importance of these factors in the future may offer manufacturers and suppliers, in particular, opportunities to differentiate passenger cars in a way that is considered less important to vehicle buyers today," Belzowski says. "It may be that respondents anticipate increased regulation for emissions and fuel economy, or they may see the arrival of future powertrains that have the potential to revolutionize what most manufacturers consider their core technology."

In terms of car-buying methods, respondents in the U-M forecast were relatively conservative in their predictions about future use of the Internet for purchasing a vehicle, as well as arranging financing or buying insurance, Belzowski says.

While the Delphi report predicts that 75 percent of consumers in the next decade will research new cars and trucks on the Web before buying (up from about 25 percent in 2000), only about 25 percent will actually purchase a vehicle online or buy (or arrange for) financing or insurance through the Internet by 2009.

Although the forecast participants may be overlooking the Web's potential in selling cars and trucks, they believe that the demand for "built-to-order" vehicles (as opposed to vehicles delivered from dealer inventory) will steadily increase from 15 percent currently to 50 percent by 2009.

"Build-to-order is considered within the industry as the next Holy Grail of automotive sales and marketing," Belzowski says. "There is a belief that consumers are displeased by their current choices of how to purchase a vehicle and that they leave the showroom disgruntled with animosity toward the retailer and the brand."

Among other findings, the U-M forecast predicts that Japanese and European automakers will do a better job than their U.S. counterparts in maintaining effective customer relations over the next decade. Also, the number of auto manufacturers and divisions will decrease by 2009, while the number of models and nameplates will remain about the same.

In addition to issues of industry structure and car buying, the Delphi report also addresses topics of brand management, consumer information, order-to-delivery, vehicle features and alternative-powered vehicles. The forecast was co-written by Brett Smith, a senior industry analyst for Altarum's Center for Automotive Research.

OSAT provides research and analysis, information resources and communication forums that respond to the continually changing needs of the international automotive and motor vehicle transportation industries.

Contact: Bernie DeGroat
Phone: (734) 647-1847
E-mail: bernied@umich.edu