Canada’s decades-old romance with small cars is ending, a victim of stable pump prices, better power train technology that has boosted the fuel efficiency of larger rides, and a dramatic shift in consumer tastes.
Sales of all eight of Canada’s favourite small cars are down this year, some cratering dramatically. Canada’s best-selling car for 17 straight years, the Honda Civic, is off by 5.6 per cent through the first quarter. That’s shocking. But the Ford Focus is down a whopping 17.3 per cent and Chevrolet’s once-popular Cruze is down 14.8 per cent.
The rest of the sales laggards: Toyota Corolla (-2.0%), Hyundai Elantra (-5.1%), Mazda3 (-7.3%), Volkswagen Jetta (-5.1%), and Hyundai Accent (-3.1%). Yes, small car sales are on the fizzle this year.
But as J.D. Power and Associates points out, this is a trend not a blip. And this is NOT about cheap gas, either. J.D. Power points out that in 2014, the national average retail price of regular fuel hit an all-time high at $1.28 per litre. That represented an increase of 35 per cent from 2009.
“Despite the increase in the cost of fuel, Canadians are buying more CUVs (crossover utility vehicles) and SUVs (sport-utility vehicles) evidenced by a 2014 year-end product mix of 58 per cent light trucks and 42 per cent passenger cars, up from 52 per cent/48 per cent in 2009,” says the market researcher in a note to clients.
This is not just a Canadian phenomenon, either. In the U.S., Ford Motor is cutting hundreds of jobs at one of its plants that produces small cars, while, as Automotive News points out, “straining to meet voracious demand for its biggest vehicles. The Ford brand set an April record for SUV and crossover sales.”
Still, fuel prices this year are accelerating the decline of small cars. Auto analyst Dennis DesRosiers of DesRosiers Automotive Consultants argues that this year’s dramatic drop in crude prices translates into a significant decline in pump prices. This in turn puts more money into the hands of car consumers and in part explains why consumers are jumping at bigger, more expensive vehicles – CUVs, SUVs and big pickups.
Indeed, Canada’s and Ford’s best-selling vehicle is the F-150 pickup, whose sales in this country outpace the best-selling car, the Civic, by more than 2:1. As DesRosiers reports, eight of the top 10 passenger cars are down this year and seven out of the top 10 light trucks are up year to date.
“When gas prices started to fall we, almost instantly saw a move to larger less fuel efficient vehicles and an acceleration of the move to light trucks. Since most of the top passenger cars are compact or subcompact, and most of the light trucks are pickup trucks and crossover utility vehicles, the sales of the top 10 cars and trucks are in part reflecting the decline in gasoline prices,” he writes in a note to clients.
Overall this year, entry-level vehicles – the most fuel-efficient in the fleet — are down by 6.3 per cent year-to-date. On the other hand, gas-guzzling sports cars are up 36.4 per cent, luxury cars are up 18.2 per cent, and large pickups, large vans, compact luxury utilities, and large sport utilities are all up dramatically – respectively, 6.8 per cent, 39.7 per cent, 47.5 per cent, and 39.6 per cent.
What this means is the marketplace is doing exactly what you’d expect. Consumer tastes and the ability to pay are converging on new CUVs, SUVs and trucks in general and the sales numbers reflect what Adam Smith would expect.
Ah, the ability to pay. Here’s what happens when gas gets cheaper, notes DesRosiers: the typical Canadian light vehicle consumes approximately 1,820 litres of fuel a year. A 10 cent decline at the pump translates into $182 saved a year. A 20 cent decline equals $364 saved and a 30 cent decline, $546 saved. When consumers start feeling the benefits of nearly $50 a month saved at the pump, the jump from a small car to a more functional and image-gratifying light truck reaches the tipping point of affordability.
The fact is, adds DesRosiers, fuel efficiency overall has increased significantly in recent years, as car companies have moved to meet dramatic government-mandated fuel economy targets for 2016 and even tougher ones for 2025. Much of the 15 per cent jump in the overall fuel efficiency over the last 25 years has really come in the last handful.
“Every time, without exception, an OEM increased fuel efficiency, consumers moved to a larger and or a more powerful but less fuel efficient vehicle,” says DesRosiers. So despite a now very long list of good small cars and fuel-thrifty alternative power trains – hybrids, plug-in, cleaner diesels and the like – consumers are snapping up larger rides at a fantastic clip and continuing to shun the thriftiest and cleanest rides in large numbers.
The research in fact shows that fuel economy is really not a sales differentiator with consumers, but an expectation, says J.D. Power. “Owners expect great fuel economy, and only if they view their performance as outstanding (10 out of 10) does fuel economy become a loyalty factor,” notes the research firm.
Of course Canadians somewhere in the deep recesses of their minds understand that eventually pump prices will go up. We are Adam Smith-like predictable in that we react to the marketplace, but we’re not crazy and we also have less disposable income than our American neighbours.
Thus it appears that in the long term, compact utility rides are the greatest beneficiary of the decline in small cars. Canadians have been buying smallish SUVs and CUVS in fantastic and accelerating numbers. Last year sales of mainstream crossover and utilities were up 18.3 per cent and the luxury kind jumped 19.4 per cent – while compact car sells slid 0.3 per cent in a record year for sales in Canada. If current trends continue, Canadians will make compact utilities the most popular type of vehicle for 2015 – more so than full-size pickups and compact cars.
Good-bye small cars. Our new love is the small utility.
Small Car Deals
This week in response to slow sales, Honda Canada fired up a five-day sales event on the Civic, Canada’s best-selling car. This tactical response to flagging demand was slated to end June 1, but may be extended or changed to another type of sales sweetener.
As pricing service Unhaggle.com notes, the deal for the Civic Bonus Event: an additional $500 stackable incentive for all new 2015 Civic models. That combined with the existing $1,500 offer means Civic buyers were looking at $2,000 in factory money and perhaps another $800 or $900 in the form of a dealer incentive.
Meanwhile, Hyundai has a $3,000 offer on the rival Elantra, Chevrolet has $1,500 on the Cruze, Volkswagen $2,000 on the Jetta, Mazda up to $1,750 on the Mazda3 and Ford has at least $500 on the Focus. Car makers are also offering attractive lease and finance rates on Canada’s most popular economy cars.
The Small Car Slump
Sales of Canada’s most popular cars, all small cars, continue to slump, with compact sales down 3.8 per cent on the year, and subcompact off 12.8 per cent, according to figures from DesRosiers Automotive Consultants.
Here is a look at sales of the top eight best-selling cars in Canada through the first quarter. All these are compact cars, save the Hyundai Accent, a subcompact.
Honda Civic (-5.6%): Honda recently showed a concept version of the next-generation Civic and it most assuredly couldn’t come too soon for Honda and Honda enthusiasts. The current model has struggled to match the success of previous generation Civics. But Honda has high hopes for what is expected to be the 2016 Civic.
Toyota Corolla (-2.0%): The Corolla is a dull be reliable small car that received a modest makeover in the last 18 months. No one buys a Corolla because it’s sexy. They go Corolla because it’s a safe purchase. But safe may no longer be enough to save the Corolla from market forces working against compact cars in general.
Hyundai Elantra (-5.1%): The Elantra is an old design, one in desperate need of a complete update. That’s coming for 2016. That said, the Elantra is a reliable and highly affordable small car.
Mazda3 (-7.3%): The Mazda3 is the most entertaining compact car in its price class and a real stalwart in the segment. It’s also very fuel efficient and nicely styled. The newish design has not been enough to keep sales from slipping.
Volkswagen Jetta (-5.1%): The Jetta is aged and its shows. But you can get one with a small diesel engine which delivers terrific fuel economy – at a price premium, of course. VW needs to remake the Jetta completely and in a hurry.
Chevrolet Cruze (-14.8%): A modest recent update has surely note been enough to stave off defections from the Cruze. It’s never been a segment leader in terms of styling and road manners.
Ford Focus (-17.3%): Power train and other improvements are nice here, but the overall Focus itself has not been significantly remade for many years. Ford has been spending billions on the new F-Series pickup, its most profitable model by far, and that means other models like the Focus are being starved for serious development funds.
Hyundai Accent (-3.1%): The Accent is a fine little car and it’s sold with a thrifty and modern direct injection engine. The design remains somewhat current, though it has been in the marketplace for several years. Hyundai sells around the world, so a next-generation Accent is surely in the works. What Hyundai cannot do is bring a new Accent to showrooms and expect customers to pay more than they’re paying right now.