Auto sales running out of gas

Rising oil prices, the credit crunch and military deployments all have contributed to double-digit declines in Hawaii

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Hawaii car sales are down dramatically this year, but not just because of rising gas prices.

The overall economy, credit crunch and military deployments are all factors cited by longtime auto dealers.

For Joe Nicolai, of JN Group Inc., his "bread and butter" dealerships have been hit with "significant" impact by deployments of Hawaii-based troops to the wars in Iraq and Afghanistan.

Nick Cutter, of Cutter Family Auto Centers, cited the credit crunch.

Other factors also come into play, according to Peter Flachsbart, associate professor of urban and regional planning at the University of Hawaii at Manoa.

He presented research, with an eye toward transit issues, to a working group of the Hawaii Energy Policy Forum on Wednesday and shared his observations with the Star-Bulletin.

Recovery for new car retailers may not come until next year and may not solidify until 2010, industry analysts say.

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The rising cost of gasoline has made a dent in Hawaii auto sales so far this year, but other factors loom larger.

Hawaii sales of new vehicles dropped 17.4 percent in the first quarter versus a year ago - with few exceptions - according to Pennsylvania-based Auto Outlook Inc. April was down 14.8 percent from a year ago. The company tracks local market statistics for the Hawaii Automobile Dealers Association.

On the Net: » www.fueleconomy.gov » www.kbb.com

Dave Rolf, executive director of the association, observed that the $4-a-gallon milestone has ignited behavioral changes not seen at the $2 and $3-a-gallon levels.

The threshold-crossing resulted in "a very dramatic behavior change which extends far beyond the auto industry," he said. One of Rolf's mainland contacts planned to change churches rather than drive 30 miles. "That's a pretty dramatic change," he said.

There has been a "triple whammy," said Peter Flachsbart, associate professor of urban and regional planning at the University of Hawaii at Manoa.

"One piece of bad news might not affect you, but three would," citing the mortgage crisis, airline closures and the run-up in gas prices. Events have made consumers "cautious" about saving money, and he shared his research Wednesday with a working group for the Hawaii Energy Policy Forum.

"People are trying to cut back on discretionary things in their budget," such as eating out and entertainment. They are "trip-chaining," or consolidating errands and planning trips more efficiently. "Sometimes they're driving a more fuel-efficient car, if they have more than one in the household," Flachsbart said.

MORE MILES FOR YOUR MONEY Kelley Blue Book offers many ways to research cars. The Kelley Blue Book Web site also has a page devoted to "gas mileage champs." Here are the high-mileage passenger cars and SUVs: PASSENGER CARS MAKE MODEL City / Hwy Honda Civic Hybrid 40 / 45 Honda Fit 28 / 34* Toyota Camry Hybrid 33 / 34 Toyota Prius 48 / 45 Toyota Yaris 29 / 36* SUVs MAKE MODEL City / Hwy Ford Escape Hybrid 34 / 30** Lexus RX 400h 27 / 24** Mercury Mariner Hybrid 34 / 30** Saturn VUE Green Line Hybrid 25 / 32 Toyota Highlander Hybrid 27 / 25 * Manual transmission ** Two-wheel drive Sources: Kelley Blue Book Co., Inc., www.kbb.com

"Aside from the environmental issues, the payback period for the premium on buying a hybrid is getting shorter as gas prices go up." Rick Ching / Executive vice president of Toyota Hawaii

Wayne De Luz, president of HADA, waxed realistic but upbeat in the most recent "Hawaii Dealer" magazine. "People still need to buy new vehicles," he wrote. Dealers have seen consumer desire shift to smaller vehicles, but large vehicle sales have been less affected here than on the mainland because "Hawaii's larger families and active outdoor lifestyles just require pickup trucks, SUVs, station wagons and minivans."

We drive about 20 percent fewer miles than mainland folks, though some of the difference is offset by our higher gas prices, he noted.

Pflueger Inc. sells a range of makes, from economy to luxury, high-mpg to low-mpg. It has seen a phenomenon all dealers reported - the gas-mileage question is asked by more people and is asked earlier in the discussion.

"That didn't used to be the case," Vice President Dan Keppel said.

GOOD ON GAS Among the compacts starting at less than $15,000 are the Chevrolet Aveo, rated for 24 miles per gallon in city driving and 34 on highways and the Nissan Versa, which, depending on the model, will get from 24 in the city and 31 on the highway, to 27 city, 33 highway. Starting at more than $15,000, the increasingly popular MINI, which gets from 21 to 28 in the city and 29 to 37 on highways, depending on the model. The model that set the hybrid bar high, the Toyota Prius, is rated at 48 mpg in the city and 45 on the highway. Source: Kelley Blue Book Co., Inc., www.kbb.com

Veteran auto dealers Nick Cutter and Joe Nicolai cited other factors as having greater impact on their businesses.

For Cutter, president of Cutter Family Auto Centers, the credit crunch is the larger culprit. "With what's happened in the credit markets, between housing and all of the write-offs that some of the large institutions have taken, the financing industry is running scared, making it much more difficult to qualify" for financing. Interest rates are good, but getting a loan is difficult, even for people who would have had no problem a year ago, he said.

Nicolai's business is "not as impacted negatively by ... gas prices as we are by the recessive state of our economy," he said. Nicolai is president of JN Group Inc. and Cycle City Ltd., parent companies of auto and motorcycle dealerships and other entities.

HOOKED ON HYBRIDS First-quarter registrations for hybrids in Hawaii: Make 2008 2007 2006 2005 Toyota 260 230 221 157 Honda 55 43 71 56 Lexus 22 21 28 0 Ford 30 30 27 4 Chevrolet 1 12 13 3 GMC 0 3 8 3 Saturn 0 4 0 0 Mercury 3 0 0 0 Nissan 0 0 0 0 Totals Hybrid 371 343 368 223 Industry 11,921 14,431 16,377 16,890 Hybrid share 3.1% 2.4% 2.2% 1.3% Source: AutoCount data according to Experian Automotive

His "bread and butter" dealerships have seen significant impact from deployments of Hawaii-based military personnel. "That's a much greater negative than this so-called gas crisis."

He downplays the severity of the $4-a-gallon gas, in part because of his annual trips to Italy, where gas sells for $12 a gallon. It has been at $11 in the United Kingdom, Germany and other countries for years. "We've been spoiled ... I don't know why it's taking the U.S. so long to catch up, (but) is it making us look at conservation measures more? Yes, absolutely," Nicolai said.

He often drives his 1962 Vespa motor scooter to work. It gets 105 miles per gallon, "so I don't see any problem," he laughed. "If there was, I'd go back to a horse, or donkey."

Nicolai is also a dealer of exotic cars, including Ferrari, Lamborghini and Maserati and, in those transactions, mpg ratings are not a consideration. "If you're going to spend $300,000, don't talk to me about gas mileage," he said. "First off, I don't recommend you drive it to begin with" because those cars "are works of art."

Motorcycles, mopeds and scooters are increasingly popular and sales are "trending upward," said Gary Wassel, vice president and general manager of Cycle City. "Probably 20 percent of the people mention gas mileage, where before, nobody would." On a recent weekend, a Honda Civic and a Nissan Altima were traded in toward motorcycle purchases.

KEEPING IT LIGHT New retail light-vehicle registrations in Hawaii year-to-date through March: Make YTD '07 YTD '08 PCT. change Acura 226 133 -41.2 Audi 72 61 -15.3 BMW 380 295 -22.4 Buick 31 25 -19.4 Cadillac 52 72 38.5 Chevrolet 789 598 -24.2 Chrysler 131 121 -7.6 Dodge 547 377 -31.1 Ford 1,109 907 -18.2 GMC 194 165 -14.9 Honda 1,744 1,555 -10.8 Hummer 39 23 -41.0 Hyundai 271 202 -25.5 Infiniti 133 105 -21.1 Isuzu 35 39 11.4 Jaguar 41 31 -24.4 Jeep 186 203 9.1 Kia 330 222 -32.7 Land Rover 36 28 -22.2 Lexus 501 395 -21.2 Lincoln 62 47 -24.2 Mazda 512 387 -24.4 Mercedes 272 248 -8.8 Mercury 25 25 0.0 MINI 88 101 14.8 Mitsubishi 65 54 -16.9 Nissan 1,780 1,518 -14.7 Other 29 15 -48.3 Pontiac 65 46 -29.2 Porsche 46 27 -41.3 Saab 38 28 -26.3 Saturn 144 137 -4.9 Subaru 76 73 -3.9 Suzuki 146 80 -45.2 Toyota/Scion 3,922 3,322 -15.3 Volkswagen 229 163 -28.8 Volvo 85 93 9.4 Totals 14,431 11,921 -17.4 Source: AutoCount data from Experian Automotive, provided by the Hawaii Automobile Dealers Association.

Of car sales in Hawaii, Toyota and sibling brand Scion sell more than other makes, but even those sales are down this year.

"Certain areas are doing a little better," said Rick Ching, executive vice president of Toyota Hawaii.

What makes it more difficult for dealers is that margins on smaller, high-mileage vehicles are smaller than on full-sized cars and trucks, he said.

"Even where somebody does need the functionality of an SUV or a truck, gas mileage still seems to be on their minds," and some opt for a more fuel-efficient four-cylinder model.

Hybrids get a lot of buzz but garner only 3 percent of total sales.

"I can't speak for other(s)," Ching said, "but in the case of Toyota, we would be selling more hybrids if we could get more.

"Demand is outstripping the supply. Those sales numbers would go much higher."

In most cases, Toyota dealers here are back-ordering hybrids, reflecting a "worldwide increase in demand."

Hybrids cost more than their gas-only brethren, but a selling point is that the extra cost can be recouped in fuel savings.

"Aside from the environmental issues, the payback period for the premium on buying a hybrid is getting shorter as gas prices go up," Ching said.

Other dealerships also sell high-mileage cars and hybrids and "whatever hybrids we're selling, we're selling at least that many in the non-hybrid version," said Nicolai.

National and local promotions seek to keep customers coming in the door to kick tires and buy, and some are specifically aimed at offsetting gas prices.

Chrysler, Dodge and Jeep guarantee a $2.99-a-gallon gas price for three years with the purchase or lease of a new model. Some manufacturers also offer high-dollar, cash-back incentives on lower-mpg models.

BUYER’S MARKET

Ching said for those looking for larger cars and trucks, "it is certainly a buyer's market."

Cutter echoed the observation.

"There are some great values out there right now, what you get for what you pay," he said. "With what you save, you could buy a lot of gas.

"The deals that are offered out there are literally better than they have been in many years."

There are consumers who need new cars and will buy. "It's the one who doesn't necessarily need it but wants a new car," Cutter said. "Those you're trying to entice with better-value deals."

Hawaii's Hummer sales were off 41 percent in the first quarter and the brand is being shopped worldwide by General Motors.

Conversely, Hawaii Cadillac sales leapt 38.5 percent, though the make is not known for high-mpg ratings. The jump has been driven by the success of the Cadillac CTS, which has won accolades including being named Motor Trend magazine's 2008 Car of the Year, said Keppel, of Pflueger. It proves that buyers have different priorities.

SIZE MATTERS

Sales of subcompact cars saw the largest gain in market share, at 1.5 percent in the first quarter.

Sales of MINIs, classified as a small luxury vehicle, are up 21 percent this year, said Darrel Pestana, manager of new car sales at MINI of Hawaii.

While buyers receive a package of benefits, no new incentives have been added due to gas prices.

Its mpg rating is a draw, but most owners see it as fitting their lifestyle, he said.

MINI owners range from youthful first-time buyers to active 87-year-old retirees, and all sorts of demographics in between. Its size may cause the perception that it is not a family car, but it has six airbags, is as wide as a BMW 3-series and can seat four adults, he said.

LOOKING FORWARD

The Hawaii Auto Outlook newsletter forecasts a 9.7 percent drop in new vehicle registrations for 2008 with moderate improvement next year and lasting recovery by 2010.

Ching, of Toyota Hawaii, believes that view is "the consensus."

In order to remain competitive in the meantime, "dealers have to have the right inventory on their lots so that customers who are searching for that high-mileage vehicle can find it."

Cutter sees the market as being in a cycle.

"When the cycle will bottom out and turn around and start to climb again, if I knew that I'd be a real smart guy and probably wealthy, I wouldn't be working," Cutter said.

Experience tells him "there's always going to be a recovery."

"The good news is that we're not dead, we're not dying and we're not terminal," he said. "We have a cold and we need to rest and watch our expenses ... it is important that we take care of our employees so ... when it does turn around we'll be here and be prepared."