Car Buyers Downsize, but Spend Big on Options

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Fabrizio Costantini for The New York Times

Lenny Schafer at Motor City Mini in Shelby Township, Mich.

 

DETROIT — Consumers used to buy small cars for a simple reason: they were cheap. A decade ago, many budget-minded shoppers turned down even options like air-conditioning, power windows and compact disc players to keep the price low.

Now people of all income levels are buying small cars to pinch pennies at the gas pump, but they are not scrimping on creature comforts. Instead, they are spending hundreds or even thousands of dollars on options, like heated leather seats and high-end entertainment systems, usually found in luxury cars.

That is adding up to some rare good news for Detroit automakers, which have long had trouble earning a profit on small cars. By contrast, they make as much as $10,000 on each big pickup or sport utility vehicle they sell. But consumer tastes have shifted rapidly as gas has climbed over $4 a gallon.

Sales of Ford’s big F-series pickup have fallen nearly 23 percent this year, for example, while sales of the compact Focus, its most inexpensive and fuel-efficient car at American dealerships, have risen 27 percent. From April to June, two-thirds of the Focuses sold were sporty SES models, priced at a $2,170 premium over the base model, according to data from the Power Information Network, a division of J. D. Power & Associates.

Bev Dickinson, an insurance saleswoman from suburban Detroit, recently bought a $20,000 Focus equipped with the Sync digital entertainment system, Sirius satellite radio, a power sunroof and heated leather seats.

“I was absolutely not going to have anything but leather,” said Mrs. Dickinson, who previously drove two larger Fords, including an Expedition sport utility vehicle.

Small-car buyers often pay $600 for a sunroof, $500 for satellite radio or $400 for a hands-free phone system. Some even spend $300 for colorful interior lights.

In this new math for the auto industry, gas mileage often trumps sticker price for consumers.

“Affordability is not so much the issue as fuel economy,” said George Pipas, Ford’s chief sales analyst. “Just because you want more fuel efficiency doesn’t mean you don’t want a moonroof or leather interior.”

Among the growing ranks of small-car buyers are baby boomers who previously toted their families in well-equipped minivans and S.U.V.’s. Now, with gas above $4 a gallon and their children grown, they want nothing to do with such a large vehicle but have grown accustomed to its luxuries.

The price Americans are paying for a subcompact car has increased an average $2,532 since 2004, nearly double the $1,253 increase for all vehicles, according to the Power Information Network data.

Transaction prices for compact cars have increased an average of $2,370 over the same period and $3,055 for the segment’s top seller, the Honda Civic.

Perhaps the biggest success in the small car segment, in terms of persuading buyers to upgrade, is BMW’s Mini Cooper, which starts as low as $18,050 but typically sells for at least 40 percent more than that. BMW offers myriad options on the Cooper that can take the price well above $40,000.

Lenny Schafer, a landscape contractor in Clinton Township, Mich., is looking to buy a Mini Cooper S convertible that sells for nearly $30,000, and gets much better gas mileage than his family’s S.U.V. and pickup truck.

“If you do the math, financially it’s not worth it,” Mr. Schafer said. “But we figured if we buy something that’s small and fun we can achieve some gas savings. It just kills me personally when I take a ride by myself and I’m getting 10 miles to the gallon and I have nothing in the back.”

While buyers are adding options, tight inventories of small cars have also allowed dealers to charge full price where they previously had to provide discounts. Only a few years ago, some Chevrolet dealers actually gave away a tiny Aveo or Cavalier to people who bought a pickup truck.

Many dealers, having realized that small-car shoppers are willing to buy higher trim levels and optional features, are stocking their lots with more upgraded vehicles. That is particularly true for hot sellers that have waiting lists, such as the Toyota Prius hybrid and the Honda Civic.

D. J. Smith, the sales manager at Panama City Toyota in the Florida Panhandle, said shoppers were so eager to get one of these hard-to-find cars that they would settle for whatever was available, usually at a higher price, so they did not have to keep driving an S.U.V. — and paying $100 to fill its gas tank — all summer.

The $11,550 sticker price on a basic Yaris hatchback, Toyota’s smallest car, gives his dealership $340 in profit, he said. But that more than doubles, to $800, for a top-of-the-line Yaris priced around $17,000.

“I’ve never seen anything like it,” Mr. Smith said. “You don’t have too many people saying, ‘It has to be white with a power package and it has to have Michelin tires.’ Instead it’s, ‘What do you have and can I get it by the end of the month? Just get me out of my Tahoe.’”

Source:  NYTimes.com

Article Date: Jul 18, 2008
Car Accociations: NEW_MINI
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