Printed Wednesday, September 28, 2005; D01

John Mathews of Universal Toyota in San Antonio has witnessed the day that auto industry executives in Detroit said would never come.

"We are seeing people who are driving $40,000 Suburbans trading them in on $15,000 Corollas," said Mathews, who manages a dealership in a state where big trucks and sport-utility vehicles rule the roads. "The last 30 days have been unlike anything I've ever seen in the automotive industry."

Even in hurricane-addled Alabama, people pouring in from Louisiana and Mississippi are popping into Treadwell Honda looking for replacements for destroyed cars. Harold Wesley, a salesman, in the midst of fielding calls last week, said he can't keep Civics on the lot -- new or used. "As soon as the new ones get here, they are sold." Wesley said the manufacturer is allocating dealers a few at a time to be fair. Treadwell's last shipment of 12 sold in three days, he said.

Nationally, Toyota Motor Corp. officials say the Corolla, one of the Japanese company's smallest and most fuel-efficient passenger cars, had 8.7 days' supply of inventory at the end of last week. In the industry, inventory of 50 to 60 days' supply is seen as adequate. Honda Motor Co. officials are struggling to keep up with demand for the Civic, of which there is nine days' supply. "Inventories are as low or lower than they've ever been for the Civic," said Sage Marie, a Honda spokesman. "They're basically being bought right off the truck."

Toyota dealers in the D.C. area say they also are seeing an uptick in demand for the smaller vehicles. But the trend isn't as pronounced as in truck-dominated Texas where people who have been buying trucks for years are rushing to get out of them. "Most of the time you come in here and you might have 80 Corollas to choose from," said Dave Reynolds, general sales manager of Jack Taylor's Alexandria Toyota. "Now you come in and you have 20 to choose from."

While small car sales are helping to lift the Japanese automakers, Detroit's General Motors Corp. and Ford Motor Co. are sinking under the weight of large sport-utility vehicles, once the industry's cash cows. The two automakers have reported substantial slides in profits in their North American operations this year, and their bonds have junk status on Wall Street. The interest in small cars has caught the two automakers unprepared, said Dave Healy, an auto industry analyst at Burnham Securities Inc. in New York.

For the Big Three, Healy said, investment followed profit margins. "As long as the SUV segment was doing well, they poured money into that and neglected small cars," Healy said. "At that time you could have made a very good case that it was giving the public what it wants."

Healy and other analysts are predicting bleak results for Detroit automakers when they report sales results for September on Monday. Healy said large sport-utility vehicles will be especially hard-hit after climbing in the summer due to "employee pricing for everyone" discount pricing sales. "We're looking at 20, 30, 40 percent yearly declines," Healy said. The spike in gasoline prices and the summer incentives have crushed SUV sales now.

Brad Boeckmann, vice president of Galpin Motors Inc., based in North Hills, Calif., the biggest Ford retail dealer in the nation, said Ford's "family price" employee discounts has "propped up" sales of large SUVs at the dealership. "When the family pricing goes away, obviously Ford and the dealers are going to need to do something to get people's attention again."

Dealers say inventory of used SUVs is building up. Raj Sundaram, president of Automotive Lease Guide, which tracks vehicle resale values, said SUVs remain under pressure. "Can anybody answer the million-dollar question -- when is this going to turn around and end?" he said. "Nobody seems to know."

GM and Ford are getting some benefit from greater interest in small cars. George Pipas, Ford's U.S. sales analysis manger, said inventories are tight for the Focus passenger car. He said sales of the Focus have grown 10 percent in the past 90 days, compared with a year ago. Pipas said the small car segment is one of the hottest in the industry. To meet demand, he said, the Focus car plant in Wayne, Mich., has had fewer production shutdowns than in past years. "As far as we can see, Wayne is going to be running," Pipas said. "But the sales pace may outstrip our production for the foreseeable future."

Over the years, Detroit's investment in new cars has taken a back seat to developing more and more truck and SUV models. Last year, GM introduced the small Chevrolet Cobalt, but consumers were cool to the car early on. Ford hasn't significantly updated the Focus in the past six years. Both companies have new or redesigned models headed for showrooms in coming months. DaimlerChrysler AG is also concentrating on bringing out smaller SUVs that get better fuel economy, an area of sales growth in the industry.

Paul Ballew, GM's chief market analyst, said the level of consumer interest in small cars is being overplayed. He said Japanese automakers are benefiting most because of their experience in the segment, particularly in their home market. Meanwhile, Ballew said GM was having a "solid" small-car month, and he said GM will continue running its Lordstown, Ohio, plant where the Cobalt is assembled at a "very aggressive clip."

Ballew said GM will continue to watch the car market before making additional plans to bring out more small cars for American buyers. Honda and Toyota are moving forward. This month Honda launched the latest Civic that includes a remodeled hybrid and high-performance models. In recent years, Toyota launched the Scion brand -- a line of small cars that Toyota is marketing to younger buyers. Scion has a tight 7.2 days' supply.

http://www.washingtonpost.com/wp-dyn/content/article/2005/09/27/AR2005092701812.html

Printed Thursday, September 22, 2005; D01

Ford Motor Co. jumped on the hybrid-car bandwagon yesterday with a promise to boost production tenfold to 250,000 cars and trucks per year by 2010, a decision that moves hybrids closer to the mainstream of the U.S. auto market.

Speaking in Dearborn, Mich., William Clay Ford Jr., the company's chairman and chief executive, said the automaker was acting without prodding from policymakers in Washington. Ford said he made the decision out of concern for the environment and out of a desire to counter "a multi-dimensional energy crisis that afflicts this nation." He said that even though the decision posed a challenge because Ford's vehicles are big and heavy and use a lot of fuel, the automaker had to "get on with it."

Only a tiny percentage of the vehicles on U.S. roads are hybrids. At Ford, hybrids will represent about 4 percent of the company's global sales of close to 7 million vehicles. But Ford's hybrid decision could deliver a windfall of "green PR," similar to what Toyota Motor Corp. has gained for early introduction of its Prius hybrid. Ford's decision also leaves exposed executives at rival General Motors Corp. who have outlined a much more cautious hybrid strategy.

Ford sells only one hybrid vehicle -- a gas-electric version of the Escape, a small sport-utility vehicle. Ford has plans to sell 24,000 Escape hybrids this year. With the new commitment, Ford would offer the option of a gas-electric engine on more than half of its Ford, Lincoln and Mercury models. Annual sales of 250,000 hybrids would surpass the 2004 volume of brands such as Volkswagen, Cadillac and Volvo in the United States.

The announcement comes as gasoline prices have risen steadily, causing consumers to turn away from vehicles with poor fuel economy, particularly gas-guzzling SUVs made in Detroit. Both Ford, the No. 2 U.S. automaker, and GM, the largest, have reported substantial slides in profits in their North American operations this year. Bonds from the two were downgraded to junk status by Wall Street bond-rating agencies, in part because of the companies' reliance on declining SUV profits.

All of the auto companies are pressing hard to catch up with Toyota, the industry leader in hybrid technology. Toyota plans to sell 140,000 gas-electric hybrids in the United States this year. Its popular Prius is on track for sales of 100,000 vehicles. Toyota also has a Highlander hybrid and the RX 400h from Lexus. Additionally, Toyota has said it is looking to bring down hybrid costs. Because of added costs associated with development and production, gas-electric hybrids typically cost $2,000 to $4,000 more than similar gas-powered vehicles.

Carmakers are looking for all sorts of ways to cope with rising gas prices. Mitsubishi Motors Corp. unveiled a program to give U.S. buyers of its cars and SUVs a year's worth of free gasoline. The offer applies to 2005 model-year vehicles. The program begins Friday and runs through Oct. 31. Mitsubishi said buyers will be mailed prepaid debit cards totaling $1,500 to $2,500, depending on which vehicle they buy.

In Washington this week, GM had its public relations machinery in overdrive in an attempt to improve the automaker's laggard image on energy and environmental issues. GM executives from Detroit, including G. Richard Wagoner Jr., the chairman and chief executive, showed off plans to selected journalists and congressional leaders for future vehicles that the company said will get better gas mileage than its current models. A GM spokesman said the company will build 12 hybrid models by the end of the decade. The first will be a hybrid version of the Saturn Vue, a small SUV, followed by larger SUV hybrids starting in 2007, he said. GM will also bring out some large car-based SUV models that get better gas mileage than traditional truck-based models.

Sensing a shift in consumer buying habits in the United States, the world's largest auto market, nearly all auto companies with sales in the country have been seeking a hybrid vehicle strategy. Earlier this month, at the Frankfurt auto show, Volkswagen AG and Porsche AG announced a joint venture to build a hybrid SUV for the U.S. market. BMW Group this month also said it agreed to join an ongoing effort by GM and DaimlerChrysler AG to develop hybrid technology. Ford said it will also offer vehicles that can run on a blend of gasoline and ethanol. Ethanol, a fuel derived from corn and other agricultural products, is cleaner and cheaper than gasoline.

Ford's announcement on hybrids drew praise from environmental groups, which have advocated greater use of hybrid technology and pressed William Ford in particular to back up his stated concern for the environment with action.

"Ford has always been willing to listen. But the reality is that their products have continued to lag behind much of the industry in environmental performance," said Jason Mark, vehicles director of the Union of Concerned Scientists, an environmental advocacy group based in Cambridge, Mass. "Ford and GM are in junk-bond status. It would be insane to keep offering the same products."

http://www.washingtonpost.com/wp-dyn/content/article/2005/09/21/AR2005092101831.html