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A wild ride as market flips to small cars

Japanese can add small cars faster than Detroit 3

Toyota and Honda are better positioned than the Detroit 3 to quickly adjust their production to U.S. consumers' sudden shift to smaller cars.

Automakers are scrambling to cope with an abrupt swing in demand from large pickup trucks and SUVs to small and mid-sized cars as gasoline prices top $4 a gallon. In May, sales of popular models far exceeded North American production.

For instance, Honda, Toyota, Ford and Chevrolet last month sold 116,710 more units of eight key compact and mid-sized cars than they built in the United States and Canada.

But Toyota and Honda have two advantages over the Detroit 3 in the hunt for more small and mid-sized cars. They can more easily boost output because they long ago adopted flexible manufacturing strategies in North America, while the Detroit 3 are still perfecting theirs, says Anthony Pratt, a Detroit analyst for Pricewaterhouse-Coopers' Automotive Institute.

Honda, for example, can shift production at its Alliston, Ontario, plant from the Ridgeline pickup and Acura MDX crossover to Civics, spokesman Ed Miller says.

And, Pratt says, the slumping Japanese market leaves Japanese automakers the capacity to increase exports to the United States.

"Toyota and Honda are well-positioned to continue to meet high demand for fuel-efficient vehicles because of their flexible plants and excess capacity in Japan," he says.

Production gap
Automakers sold more fuel-efficient small and mid-sized vehicles in North America than they built there last month.
 N.A. sales**N.A. production
Toyota Corolla/Matrix*63,32335,853
Honda Civic*62,02630,646
Toyota Camry/Solara*54,14243,712
Honda Accord*46,59727,484 (est.)
Ford Focus35,50323,735
Chevrolet Cobalt30,69119,744
Ford Fusion19,99620,115
Chevrolet Malibu17,69811,877***
Total329,876213,166
* Sales of these models include 24,924 imported vehicles
** Sales figures for Mexico not available
*** Kansas City, Kan., plant on strike for part of May
Source: Automotive News Data Center, companies

Japanese automakers did not respond to calls last week about whether imports would increase — a politically sensitive subject. Miller says Honda would increase Civic imports only as a last resort.

Inventories are low on high-demand models, especially those with four-cylinder engines, while auto dealership lots bulge with unsold full-sized pickups and SUVs. In the 12 months ending May 1, U.S. dealership inventories shrank to 54 days supply from 59 for cars, while light-truck inventories soared to 89 days supply from 67.

"May was a watershed month," said Jim Farley, Ford group vice president for marketing. "We are as an industry catching up with the breathtaking choices that the customers are now making."

GM, Ford Motor and Chrysler LLC are:

-- Boosting output of smaller cars with overtime and additional shifts.

-- Cutting production of unpopular vehicles.

-- Boosting incentives on selected models.

-- Changing ads to tout fuel economy.

-- Slashing fleet sales to divert more cars to dealers.

But with the exception of the Chevrolet Aveo from Korea and the Saturn Astra from Germany, the Detroit 3 have no high-mileage cars immediately available to import.

Many Asian brands limit imports, hoping to defuse charges of eliminating U.S. jobs. Compared with the first five months of 2007, Asian automakers this year cut imports 1.2 percent to 1.61 million units.

Honda spokesman Miller says Honda will begin assembling the Civic at its new plant in Greensburg, Ind., in October. Until then, he says, Honda will rely on plant flexibility to meet demand. "We've built a lot of flexibility into our system," Miller says, "so we're in a good position to take advantage of the shift to the small cars."

The key to having enough Civics to meet demand is Honda's Alliston, Ontario, plant. Honda of Canada Manufacturing Inc.'s Alliston Line 2 assembles the Acura MDX crossover and Honda Ridgeline pickup truck, the automaker's two largest vehicles. Honda added the Civic to this assembly line last year.

At Toyota Motor Sales U.S.A., spokesman Xavier Dominicis said that for the Corolla, "The first place we would look would be to increase capacity here." The Corolla is built in the New United Motor Manufacturing Inc. joint-venture plant in Fremont, Calif., and at Toyota's plant in Cambridge, Ontario. Dominicis said that for the Camry, "our inventory situation is actually OK."

Meanwhile, GM plans to close four truck plants and add shifts at mid-sized car plants in Orion Township, Mich., and Lordstown, Ohio.

Since late April, Chrysler has been working regular overtime at its Belvidere, Ill., plant, where its three smallest vehicles are assembled: the Dodge Caliber car, and Jeep Compass and Patriot crossovers.

In May, Ford dealers sold 91 percent of the Focus models they had in stock as of May 1. So sustaining such a high rate of sales will be nearly impossible, said Ford's head sales analyst, George Pipas, adding, "So how do you sell 30,000 again next month?"

Kathy Jackson, Ralph Kisiel, Jamie LaReau, Mark Rechtin, Bradford Wernle and Amy Wilson contributed to this report

You can reach Jesse Snyder at jsnyder@crain.com

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