Entry-Level New Car Market Shrinking While Luxury Vehicle Sales Rise

DETROIT Ed Garsten of the reported that the marketing logic always has been simple and effective: lure young car buyers with low-cost products in hopes of winning their loyalty, especially when they're earning more and ready to move up to something more expensive.

Between 1995 and 2001, however, the proportion of those earning less than $45,000 a year buying new vehicles dropped 9 percent while the share of new vehicle sales by typical luxury vehicle buyers -- those with an annual income of more than $75,000 -- has soared 16 percent, an analysis by General Motors Corp. found.

"There's been a shift in the new vehicle buyer to the upper third of the population," said Paul Ballew, GM executive director of sales and marketing analysis.

Despite a competitive market where new car prices have fallen 2.2 percent since the beginning of the year and generous incentives, the average transaction price of vehicles sold is $26,000 to $27,000 industry-wide, Ballew said.

Less than a decade ago, the average transaction price was about $20,000.

The reason for the shift, he says, is affluent buyers are choosing more expensive luxury cars and sport utility vehicles, while entry-level customers are either putting off purchases or choosing used vehicles.

Over last the last 4 years, the average income of people buying new cars has been between $61,000 and $63,000.

In May, it jumped to $67,000 and in June it climbed to more than $70,000 for the first time, said Art Spinella, who heads Bandon, Ore.-based CNW Marketing, which tracks vehicle sales.

The reasons: the end of the Internet and wealth boom of the 1990s and uncertainty over the economy after Sept. 11 are giving lower-income buyers second thoughts about making such a large investment, leaving mainly higher income buyers in the marketplace.

GM's antidote to the market shift will be an added emphasis on its certified used car program, Ballew said.

"We sincerely believe if a customer has a good experience with a used vehicle as maybe their first vehicle purchase or second vehicle purchase, they're more inclined to consider us when they move into the new vehicle market," he said.

Certified used vehicles are backed by a limited manufacturer warranty, must be a certain age and have not been driven more than a certain number of miles.

The term "certified used" is not regulated. Each manufacturer has its own criteria.

GM plans to step up promotion of its program but is not ready to say whether it will include them in any sort of national incentive promotion, Ballew said.

Of an annual used car market of about 40 million vehicles, about 670,000 were sold last year.

GM says it will not abandon the entry-level new car market, but clearly purchasing trends have shifted.

Bearing out the shift to more expensive vehicles is an analysis of sales for the first six months of the year by Ward's AutoInfoBank.

Through June, nearly 200,000 more Ford F-Series pickup trucks have been sold in the United States than Toyota Camrys, the year's best-selling passenger car so far.

The second-best selling passenger car, the Honda Accord, moved 181,603 units, but the second-best selling truck, the Chevrolet Silverado beat that mark by 144,523 units sold.

Among traditional luxury brands, BMW AG has seen its sales through June rise 16.1 percent over the first six months of last year and Mercedes-Benz sales are up 3.1 percent, its best first half ever.

GM's Cadillac division sales are up a whopping 12.9 percent over the first six months of 2001.

Sales for Lexus, the luxury division of Toyota Motor Sales Co., are up nearly 8 percent for the year, and sales for Nissan Motor Co.'s luxury unit, Infiniti, are up 16 percent through the first six months of 2002.