Compacts Take Bigger Slice in the US Market

by : Joe Thompson

Compact cars continue to take bigger slice of the American auto market. Said increase is trigged by the introduction of competitive new compact vehicles that offer a different level when it comes to driving satisfaction. This piece of information was reported by the Power Information Network (PIN) which is a division of J.D. Power and Associates.

The vehicle share of compacts in the new-vehicle market increased from 27.9 per cent in 2005 to 31.2 per cent in 2006. Within same period, the share of midsize vehicle plummeted from 42.8 per cent to 40.4 per cent, while the share of large vehicles declined from 29.3 per cent to 28.5 per cent.

In 2000, compacts accounted for just 23.8 per cent of the US market. Now, it is showing a different level of sales swelling. "Growth in the compact vehicle segments is being driven, in part, by an increase in the number of models and the popularity of small crossover vehicles," said Tom Libby, senior director of industry analysis at PIN.

Other factors affecting the growth in sales include the availability of more compacts. These compact vehicles do not only exude style, functionality and performance but they are also made more affordable than before. Libby also noted the remarkable increase in gas prices in 2006. The inflation resulted to the shying away of consumers from trucks and other huge vehicles. "It will be interesting to see if prices stabilize at or below $2.00 a gallon, whether we see a return to larger vehicles," said Libby. "I don't think we will."

Due to the mounting popularity of compacts, dealers have reported greater demands. The turnaround is much quicker than other new vehicles. In addition, five of the seven segments with the fastest turnaround rates in the industry in December 2006 were compact vehicle segments, with the compact premium CUV (28 days) and compact basic car (35 days) segments ranking one and two, respectively. The rates of the mentioned segments lowered dramatically from December 2005 to December 2006 despite the fact that the industry's total rate increased from 55 days to 67 days over the same time period. Further, 7 of the 12 new models with the fastest turnaround rates in December were compacts.

One indicator of the booming compact market is the increase in segment loyalty. During the last quarter of 2006, 56.4 per cent of all owners of non-luxury compact vehicles traded for another one. The figure is up from the recorded 51 per cent in the fourth quarter of 2005. The percentage of owners of both midsize and large non-luxury vehicles trading to a compact vehicle increased as well. From the previous 20.8 per cent, the figure increased to 25.8 per cent among owners of midsize non-luxury vehicles. For the large non-luxury vehicle ownership, the figure rose from 7.0 per cent to 9.1 per cent.

Another indicator of the sales increase is the introduction of more compact models. In fact, 7 compact models were introduced or confirmed at the recently held North American International Auto Show in Detroit. Introductions focused on new smaller crossovers and more conventional small cars, said Jeff Schuster who works as the executive director of J.D. Power and Associates Automotive Forecasting. "We expect this segment to remain intensely competitive and under pressure from midsize crossovers as well as small conventional hatchbacks and sedans. Overall, we expect it to maintain share near 8.5 percent of the market over the next two years."

Among the vehicles introduced in the auto show include the restyled Ford Focus. The vehicle is still built on the same platform. The prominent integrated to the model enhanced its efficiency. However, the automaker also added substantial upgrades to the Ford Focus' exterior and interior styling. The Ford Focus is the very first model from the automaker to use the Microsoft Sync in-car digital system.