Sales Trends

Global hybrid sales trends have continued to increase despite the declining global light vehicle market. Some of the fastest growing light vehicle markets in the world are BRIC nations with China, India and Brazil experiencing light vehicle growth in 2009.

Despite the overall automotive growth in these emerging markets, hybrids have declined. And not just declined, but not sold. In China from January - October of 2009, only 303 vehicles out of nearly 9.7 million sold, were hybrids. For this same time period, India had 61 hybrid sales out of nearly 1.7 million vehicles. And Brazil didn't have a single hybrid vehicle sold during this time period.

So why don't hybrids sell in these otherwise fast growing markets? My best answer for this is a combination of activities including relatively low retail gas prices, no financial incentives from the government to buy "greener" cars that would compensate for the higher sticker price and also the possibility of limited availability due to OEM distribution strategies.

I'm currently working on a global hybrid Polk View analysis that will be published soon and would like to hear your thoughts on why hybrids aren't selling in emerging markets.

Posted by Margaret Zewatsky, Global Market Analyst, Polk (02.09.10)

2009 will forever be remembered as an extremely turbulent year—filled with global automotive industry challenges. Global Light Vehicle sales for 2009 were approximately 61.9 million, down 5.1% from 2008. However, from a purely statistical point of view, the Global Automotive market demand seemed to be far more robust than expected at the beginning of 2009. November '09 sales were up 25% from the year before, and December '09 sales were up by about 22%! All together, fourth quarter sales were up about 17% over the final quarter of 2008, when sales bore the full brunt of the financial crisis.

Looking back we have to realize that demand was inflated by numerous government programs enacted to stimulate the automotive markets and as a result impact sales trends. On the other hand, it is astonishing how different the results were in most of the developed saturated automotive markets (e.g. the U.S.) compared to the upcoming "emerging markets" (e.g. China) which are still characterized by a very low density of vehicles on the road.

Stimulated by energetic government intervention, the global economy has stabilized in recent months so the basic economic outlook for 2010 is clearly better compared to the economic framework in 2009. Will the Global Automotive market follow this positive industry trend?

The latest Polk global light vehicle forecast report is available free for your download. This automotive forecast analyzes 2009 sales, Polk's economic outlook and light vehicle forecast for the year ahead. Take a look and let us know your expectations for 2010.

Global Light Vehicle Sales Forecast

Posted by Uwe Biastoch, Director Global Forecasting, Polk's Europe Operations (01.20.2010)

There has been much recent news and comment with respect to Europe and the sales environment looking ahead. We know from our own experience that the introduction of scrappage incentives can have positive influence whilst in effect, but can also have negative impacts on future vehicle sales. Further, our own analysis has identified unforeseen side effects relative to these programmes with reductions in loyalty rates. Once these programmes ended the loyalty rates returned to normal – demonstrating just how sensitive repeat buyers can be to these types of programmes.

With scrappage programmes coming to an end in Europe, and market-specific influences such as the VAT increase in the UK – it begs the question as to what we can expect in the years ahead.

We will be reviewing our most recent global automotive forecasts, with a detailed view on European Car Demand at a Polk EuroCar Seminar in the UK upcoming on 20 January 2010. For those attending, we look forward to reviewing these forecasts with you, and for those who cannot attend – we hope you will follow Polk’s Forecasting Dashboards or engage with us directly.

The current and projected sales trends have caused many vehicle manufacturers and dealers to increase their focus and attention on customer retention and related programmes. Customer loyalty and optimal aftersales programmes drive positive customer behaviours, and ultimately dealer and manufacturer profitability – key in the difficult sales environment. We will explore some of the best practices we have seen at the seminar, including such areas as predictive targeting and multi-channel integrated communications. Aftersales and service matter, and there are opportunities to succeed and drive results.

And whilst there is no doubting the impact of customer loyalty and retention, no brand can excel in these times without converting the highest percentage of active prospects. There are proven approaches to prioritising focus that generate demonstrable results in increasing conversion rates – and particularly with respect to internet leads. We will discuss our experience in this area at the seminar, and the broader effects the internet and social media are having on the industry.

These are indeed interesting times, but there remain opportunities for the taking.

Posted by Norm Marks, Vice President & Managing Director, Northern Europe, Polk (01.13.2010)

I wanted to analyze sales trends and look at the impact that GM's decision to discontinue the Saturn brand will have on customer loyalty. More specifically, have Saturn owners defected from GM at a higher rate this year? What are Saturn owners likely to purchase when they return to market for their next new vehicle purchase?

From January 2004 – December 2008 over 56% of Saturn owners were loyal to GM, with nearly 30% defecting to Asian brands. During this same time period Saturn maintained a make loyalty rate of 41%. Incidentally, the Saturn ION won a Polk Automotive Loyalty Award for 4 years straight for the 2004-2007 model years.

While Saturn owners have previously demonstrated strong loyalty towards both the brand and GM as a manufacturer, the story changed dramatically in the first 6 months of 2009. Defections to Asian brands are up 22% and loyalty to GM is down 16%, driven largely by a sharp decline in Saturn brand loyalty. Honda and Chevrolet occupied 3 of the top 10 defection destinations with the Honda Civic being the primary destination of Saturn owner defection.

If the results from the first six months of 2009 are any indication of what we can expect in the future, then less than 50% of current Saturn owners will remain loyal to GM and more than a third will defect to Asian imports with a significant percentage of them choosing Honda.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (11.16.2009)

Hybrid sales trends are down 23% comparing January through August 2009 to the same time period in 2008. But seven new hybrid models have hit the road in 2009. Most of these new hybrids have a traditional gasoline engine counterpart, but the Honda Insight is available only as a hybrid. All of the new models have a tough challenge ahead since Toyota Prius leads the hybrid segment with a 49% command of sales CYTD thru August 2009.

The Toyota Prius and Honda Insight are available strictly as hybrids, but both Toyota and Honda also have models with traditional gasoline and hybrid options (e.g., Toyota Camry and Honda Civic). Ford, on the other hand, has three hybrid models (Focus, Fusion and Escape) in the market, all of which are also on the market as traditional gasoline only vehicles.

So to my question: What is the right hybrid strategy? Positioning a model as an exclusive hybrid with distinctive styling like the Toyota Prius and Honda Insight or offering a hybrid option to an existing gasoline powered model like the Ford Fusion? Does the general public want to drive a distinctly styled hybrid that proudly displays their eco-friendliness or do people simply want better fuel economy on existing popular models?

It is interesting to think about which strategy will be the best, especially with the highly publicized Chevy Volt and Nissan Leaf launching soon. What do you think?

Posted by Margaret Zewatsky, Global Market Analyst, Polk (10.16.2009)

About half the size of a Ford F150 pickup truck, minicars get great gas mileage, are reasonably priced and have a distinctive style inside and out. Minicars are on their way to the U.S. in a big way with six OEMs investing in new minicar launches over the next 5 years to compete with the already launched Smart Fortwo. In the soon to launch models, such as the Volkswagen Up! and Scion IQ, you can expect to get upwards of 65 miles per gallon for a price that is light on the wallet, too. With a VW Up! starting at $9K or a premium packaged Fiat 500 starting at $16K, this should be a deal for many.

Although the minicar segment may be relatively new to the U.S. market, it's an established segment in automotive markets across the globe from Western Europe to China and India. In 2008 there was only 1 minicar (Smart Fortwo) available in the U.S., but in Western Europe there were 48 and in China there were 18 models for sale. Polk’s automotive forecast projects the minicar segment in the U.S. to remain below 1% of all light vehicle sales through 2014 despite growing over 500% from 2008 to 2014.

If you want to learn more, we just released a Polk View titled "Will Super Small Cars Generate Super Big Sales?" The Polk View discusses topics relating to the minicar segment’s sales trends in Western Europe, China and the U.S.; how these minicars have redefined small spaces; who are likely buyers for the soon to launch minicar models in the U.S.; and what's the motivation for OEMs introducing mincars to the U.S.

I invite you to read the article and let me know your thoughts about how minicars will be received throughout the globe, who will buy them and would you consider buying one yourself?

Posted by Margaret Zewatsky, Global Market Analyst, Polk (10.08.2009)

I may be ridiculed for the next year about this, but I have to come clean. I love minivans. I'm a dying breed since industry trends show minivan sales in 2008 only represented 4% of the US market down from over 6% in 2004. And three of the nine OEMs that sold minivans over the past 5 years have exited the segment.

I don't own one (yet), but I think they are a family's best friend. If it weren't for an early turn in on a lease and a great deal on a Chevrolet Traverse, I'd be sitting pretty in a Chrysler Town & Country right now. Don't get me wrong, I love my Traverse. The DVD player with head phones, second row bucket seats, seating for seven and lots of cargo space make the Traverse a nice family ride, but I want more. I want the lower deck height of a minivan so I don’t have to hoist the car seat over my head to get it in the car. I want the stow and go storage for all the stuff we seem to collect in the car. I want the sliding doors that open at the push of a button.

My husband doesn't get my love of minivans and refuses to drive one. Am I just blinded by the functionality of them? Someone must agree with my love of minivans... But then again maybe not--2009 sales trends show minivans up only a quarter of a percent from 2008. Are you a minivan lover or hater? Sound off.

Posted by Margaret Zewatsky, Global Market Analyst, Polk (10.07.2009)

Everyone is talking about the market turbulences caused by the governmental scrappage schemes in different European countries. Much has been made of the fact that many consumers have "pre-bought" in 2009, which will have a negative effect on the sales trend in 2010. But, nobody is really talking about how the scrappage schemes have changed the market structure. I decided to look at the effect of the scrappage schemes on diesel-powered cars to see what the effect on that important vehicle segment might have been.

I found that the scrappage schemes had a significant and negative effect on diesel car sales. During 2008, the long-term upward trend of increased European market share for diesel vehicles came to an end, peaking at about 51% of total new car registrations. In contrast, during the first seven months of 2009, the share of diesel cars in the European market share fell to 45%.

Diesel Share Europe

Why did the scrappage incentives cause diesel sales to fall? People bought a heavier level of mini and small cars during the scrappage incentive period, which took away from diesel sales. As consumers who purchase mini and small vehicles typically use them for urban driving, they don't find that spending the extra money for diesel cars is justified by the savings in fuel costs. Also, since there are fewer diesel models in small or lower vehicle segments, consumers bought more non-diesel models as a result of the incentive programs.

Here is an example of the shift from diesel sales: In the German market for the first seven months, the share of diesel vehicles fell by 14 percentage points to 30% this year. I have not seen this low level of diesel penetration since about 10 years ago.

Diesel Share Germany

While we have to assume a total sales volume reduction in markets that are currently heavily supported by scrappage programs when the programs end, we also expect a normalisation in the market structures. We would expect to see sales in the small vehicle segment go down next year, which will automatically cause the market share of diesel vehicles to increase because of the higher diesel penetration in larger vehicle segments.

The scrappage schemes have given auto analysts a hard time – it is essential for them to get quick and detailed data in order to analyze the sales trends and distinguish short-term market reactions from real industry trends. From my perspective, the reduction in diesel sales is one example of a short-term sales trend.

Posted by Thomas Mawick, Manager, Automotive Studies, Polk, Essen, Germany (09.02.2009)

Typically, I'm pretty good at predicting trends in the commercial vehicle market. This particular occasion, though, I was stumped with a capital "S." I thought that with the glut of engine and emissions regulation changes, there would be a noticeable increase in the sales trend for vehicles with medium-sized engines putting out less Horsepower, Particulate Matter (PM) and Nitrogen Oxide (NOx). The smallest engines are too uneconomical for heavy duty trucks, and larger engines are too heavy and full of pollutants - so naturally the engines in the 10 liter to 13 liter groove would be growing in acceptance, right!? Right? Well, you know what go-eth before the fall.

To prove my point (rather than find the facts), I crunched some numbers. Turns out, medium-sized engines have been dropping in popularity with surprising regularity. In fact, over the past five years, engines with a liter size between 10.8-13 have gone from 41% of the engine population to under 30% of the engine population in class 8 trucks.

The above means that 14 liter engines and larger, combined with all small engines under 10.8 liters, have risen from 59% of the total population to just over 70% in the past five years. I have surmised transportation companies, and the commercial vehicle industry in general, are going through a shift in business practices. Some companies are committing to more local transit, while others have stuck to their long-haul roots. Thus, smaller engines have been mated to local transit trucks, and the larger engines with more power and lasting ability have been placed in the long-haul carriers - at least this is my assumption. I personally don't care what the size of the engine is on the truck as long as the load is on the road, but I am interested in sales trends so I would love to know if the engine size in your truck is consistent with my findings - and if so why?

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (08.28.2009)

From the "Umweltprämie" (environmental bonus) in Germany to Plan 2,000€ in Spain to "Cash for Clunkers" in the U.S., governments around the globe are stimulating their automotive industries through programs that allow consumers to trade in old vehicles for newer, more fuel-efficient mod-els. While these programs are very popular among consumers, we have seen a rising wave of crit-icism to the effect that such programs are "a useless waste of money," that they constitute preferential treatment for one industry over others, that they have "no actual effect" on sales trends and that automotive demand will collapse entirely once these programs expire. What is the truth? Are these stimulus programs worthwhile?

To find out, I took a look at Polk’s automotive forecasts. I found that global sales will be well over four million units higher in 2009 than they would have been without the stimulus programs. In the context of one of the most severe recessions of all times, this 7% boost in demand is a blessing for carmakers, suppliers and dealers alike.

Global New Registrations of Light Vehicles

It cannot be denied that some of these additional sales actually represent advance 2010 demand, meaning that consumers who planned to buy a new vehicle next year are choosing to do so now. But, of the 4.2 million additional vehicles that will be sold in 2009, just one million are sales that would have been realized in 2010. Rather, most of the growth in demand for new vehicles can be attributed to the rising motorization rate in some countries (e.g. China), and the fact that new cars in some countries are now so inexpensive that many consumers who previously drove used cars are now able to afford a new car for the first time.

It is true that global registrations will fall once again in 2010. But this does not justify the conclusion that the stimulus programs are a curse and not a blessing. After all, we must keep in mind that these programs will have a net positive effect of well over three million sales in 2009 and 2010 globally. All in all, I think these government stimulus programs must be seen as a good thing, not only for carmakers, dealers and suppliers, but for the many consumers who may never have been able to afford a new vehicle otherwise and, above all, for the men and women whose jobs were saved by these programs.

Posted by Ulrich Winzen, Chief Analyst, Polk, Essen, Germany (08.20.2009)

It is not a secret by any means that we in Canada live in a very diverse country. This diversity creates the need for automotive marketing targeted at unique groups of people in almost every city. The most unique target market of all is not located in a single city, but within the provincial boundaries of Quebec.

A quick glance at the vehicle segments and brands that are popular in Quebec shows that buying habits in this province are a little bit different than in the rest of the country. This got me thinking: How different are Quebec vehicle buyers verses the other large provinces? I have always known that the demographic make-up of the province was a little different, with the most obvious difference being that French is the primary language in Quebec. But, as we looked deeper into the market, it became apparent that consumers in the province lead a more urban lifestyle and have more of a European mindset, these factors seem to be leading their unique vehicle preferences when compared to the rest of Canada.

For the last several years, the sales trends indicate a strong preference for compact vehicles in Quebec. The Asian automakers have clearly had the more appealing product as viewed by the Quebec consumer. Some automakers have not done well in the province because they didn’t offer the compact vehicles that the Quebec market demanded. Now it has taken a near crippling recession to prompt the mindset of some automakers to shift to more compact-orientated vehicles. To succeed, not only do these automakers need to offer high-quality products in these segments, but for the Quebec market in particular, they will need a specific marketing approach tailored to this very distinct consumer base.

Polk has just put together a Polk View titled "Compacts in Quebec - Small Cars with Big Popularity". This Polk View analyzes the sales trends and buying behaviours of this unique consumer group and discusses the factors driving them. Please download this Polk View and share your thoughts.

Posted by Peter Haefele, Senior Analyst, Polk (08.19.2009)

A few days ago in my last blog post, I started a game of Commercial Vehicle Market Super Mario Brothers – an analysis of near-term sales trends within the context of Super Mario. I looked at the number of buyers in the market (less than before,) and the number of vehicles buyers are purchasing (consistent with past trends). Now, my game continues...and I’m down to my final "man."

I decide to look at commercial vehicle pricing for 2010, when I run across an article out of HDMA telling me that surcharges will be passed along to the customer from the OEMs because it is more expensive to produce the Selective Catalytic Reduction (SCR) and Exhaustive Gas Recirculation (EGR) engines that are compliant with the 2010 government regulations. What!? Now is certainly not the time to raise prices - and although I'm not clutching my chest and claiming that this is the "big one" like Fred Sanford - I am actually getting worried. At this point, I feel like I've carelessly lost another Super Mario and it is taking all of my energy to keep from hitting my giggling and pointing brother.

Alright, this is my last Mario and I'm going to make it count. Except, my brother walks by and punches me in the shoulder for the dirty look I gave him. This of course happens right as I start Mario out on the course. The problem that has derailed this train of positivity? Overcapacity. The numbers suggest that there are 300,000 idle vehicles currently owned but not in use, or with lapsed registrations. Now I could complain but I know the cheat code, which gives me one extra man to go on with. My other profit centers can - and will continue to - trend upward.

Focusing resources toward aging and overused fleets can effectively shield Class 8 Truck dealers from a new truck sales slump. While the information may be unpleasant, there is some speculation that buying will resume to normal to increased levels in the next 12 months. Although the typical indicators may not be the key to profitability, I can always redefine success. While sales in 2009 may not spike like they did in 2006 for the emissions changes, the sales trends uncovered lead to a clear conclusion. The best thing to remember is the multiple profit center philosophy...when one is under-performing, like New Truck Sales, there is opportunity to make some profit in the others. So look forward to the Parts and Service, Finance, and Used Truck Departments' strength or, risk getting beaten by the game and laughed at by your brother.

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (08.14.2009)

The first vehicle from India will go on sale in the U.S. early next year, several months later than its original 2009 launch date. Mahindra & Mahindra will launch the yet-to-be named diesel powered pickup through distributor Global Vehicles U.S.A. Inc with a 50,000 annual sales target. This sales goal seemed aggressive for a compact pickup with no brand recognition, so I did some analysis to find out how realistic it would be for the Mahindra pickup to reach 50,000 units annually.

The Mahindra pickup will enter the U.S. pickup market at a turbulent time. The entire pickup market has been contracting since 2004 and the compact pickup market, which the Mahindra pickup will likely complete in, is dominated by the Toyota Tacoma. When I looked at sales trends from Polk's new vehicle registration data, I found that the Toyota Tacoma had a 53% share in the compact pickup market for the first five months of 2009. And, no other compact pickup besides the Tacoma had sales above 45,000 in 2008. The market size, competition and the fact that the Mahindra pickup is the only diesel fueled pickup in the compact pickup segment makes the 50,000 sales target a stretch goal for an established brand, let alone a new brand unknown to many Americans.

Jan-May 2009 Market Share by Model in Compact Pickup Truck Segment

Polk just released a Polk View titled "Is the U.S. Auto Market Ready for Indian Vehicles?" The Polk View discusses topics relating to Mahindra & Mahindra entering the U.S. market including recommendations for initial launch markets, a market entry analysis on the Mahindra Scorpio SUV that will launch in late 2010 or 2011, and likely reception of both of these vehicles in different U.S. markets.

I invite you to read the Polk View and let me know your thoughts about how the Mahindra pickup will fare in the U.S.

Posted by Margaret Zewatsky, Global Market Analyst, Polk (08.13.2009)

Impending emissions standards increases usually signal the flood of pre-orders for trucks. Yet, it is August and there still is no indication that there will be any pull-ahead sales. This got me to thinking...can the pull-ahead sales trends be predicted by the number of fleet purchases? More importantly, will 2009 resemble 2006 when new emissions standards slated to go into effect the next year help "pull" an increase of New Truck Sales?

The assumption is that there are fewer buyers in the market, so we need to find the actual number of potential purchasers because they are an important indicator of the commercial vehicle market's volume potential. Therefore, the first variable to measure - in my quest to calculate the industry's near-term fate - is an estimated number of companies that will need to buy based on prior activity. As was assumed, there are far fewer fleets purchasing in 2009 - somewhere to the tune of 25% fewer than at this same point in 2008.

Learning this particular fact made me feel like a young boy playing Super Mario Bros. 3 when a turtle would bite him and Mario lost a special power or shrunk to "Mini Mario" under the weight of the player's ineptitude. Instead, the economy is the player and the market conditions are the snapping turtles nipping at young Mario's heels (who of course is also known as industry variables). Usually, in those days, as the game player (or class 8 truck dealer in this case) I would tell myself that this is merely a setback; I will make it up by grabbing some extra stars to get an additional "man."

Undaunted, I figure that there may be some light at the end of the tunnel, so I go hunting for commercial vehicle market stars. I decide that I can estimate the average number of purchases by isolating all of the New Vehicle registrations each company has made during the year. I'm hoping that a lack of activity in the beginning of the year will indicate that everyone is playing the waiting game for the 4th quarter. When dissected by industry, fleet purchase averages seem to line up with other years - all years except 2006 when pull-ahead sales for new emissions standards stimulated the industry.

In other words, those who are purchasing are buying the same average number of vehicles per purchase as in past years. This statistic lets me know that the people that are buying have not treated this current emission reduction like the last fleet update period - buying light early to purchase heavy at the end of the year. Now, my first Mario has been killed and I'm getting a little upset. This is okay, because sometimes a little anger only makes you more focused to play the second man, so I know I can handle this.

Join me for Part 2 of this blog post when I continue my game of Super Mario and my look at near-term sales and industry trends in the commercial vehicle market.

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (08.12.2009)

There's been a lot of talk and media attention to the weak state of the auto industry, so I decided to take a look at a segment of the market that doesn't get covered quite as much: luxury vehicles. Surprisingly, we’re still not seeing the drop in luxury vehicle sales this year that might have been expected considering the current economic and automotive industry challenges.

Sales Trends

Industry trends are showing that luxury vehicle sales have declined 34% year-to-date compared to 2008, less of a decline than the 35.1% drop experienced by the overall category of cars and light trucks. Looking strictly at cars (not trucks), we see a drop of 35.8% from last year...still lower than the year-over-year 38.6% drop for non-luxury cars. We have noticed a slight shift to lower-priced luxury cars, with greater sales declines seen in the higher-end flagship cars such as the Mercedes-Benz S-Class, the BMW 7 Series, and the Lexus LS.
 

The sales trend is better for trucks, although the segment still experienced a decline. Sales of luxury trucks are down 30.4% year-over-year compared to a 31.9% drop for non-luxury trucks. And some brands are increasing market share and sales. The Lexus RX is the luxury truck leader, and has increased its share of the luxury truck market by four percentage points over last year. The new Audi Q5 and Mercedes-Benz GLK-Class have added almost 12,000 units this year through May.

Customer Loyalty

Tracking customer loyalty and competitive financing programs will help identify keys ways to increase share as the industry struggles to recover.

The luxury auto makers still have to contend with declining loyalty. Polk’s most recent loyalty study shows serious declines for Lexus, Infiniti, and Volvo. BMW, Porsche, and Jaguar have all improved their loyalty for Q1 2009, but loyalty in the luxury segment overall is down 1.5 points from the prior quarter.

Leasing

While leasing for luxury cars and trucks has declined from last year, it’s probably not the great leasing deals that are causing defections. Luxury truck leasing is down 47.8% from last year and leasing of luxury cars has dropped 44% since 2008. Leasing penetration is off for most makes, but as credit conditions ease, manufacturers with the best financing programs will increase both loyalty and conquest.

Careful management of customer retention to increase loyalty and implementation of competitive financing programs will be the key to increasing market share until the segment rebounds.

Posted by Rick Vicedomini, PolkInsight Advisor, Polk (07.30.2009)

The eagerly awaited Cash for Clunkers program is one of the hot topics du jour in the automotive industry. Given the current automotive industry challenges, any additional incentive program could be an instrument in enabling the recovery of auto sales. Although experts in general are skeptical of the real impact on sales trends, many in the industry are wondering how many households qualify for this new program (although the budget cap on the program will make it impossible for everyone who qualifies to participate).

Here at Polk we created a model identifying the households likely to own a vehicle that qualifies for the Cash for Clunkers program. At the same time, independently of the Cash for Clunkers model, we segmented the entire US market into groups based on the type and number of vehicles they own, age and market value of the vehicles, income and ability to pay for a new vehicle (with or without extra incentives). Based on this segmentation and the Cash for Clunkers model, we came up with a rough estimate of the program's market potential: 4 million.

Let me explain how we arrived at that number.

Roughly 11 million households are highly likely to own clunkers. However, not all of these will be able to afford a new vehicle, will be interested in taking advantage of the program or will even be aware of it. Of the 11 million clunker owners, we identified a group (about 6.5 million), that have high income and can easily afford a new car. Most likely, these people keep the clunker as an extra vehicle in their garage. It is hard to tell without further research how many of these households will actually be interested in getting another new vehicle, but a fair estimate is about 3.5 million.

Another segment of 2.5 million clunker owners have relatively low incomes and will probably be challenged in securing funding for acquiring a new vehicle, even though they may actually need one. We estimate conservatively that about 500,000 consumers from this group will actually be able to acquire a new vehicle via the program.

Whether or not the Cash for Clunkers program results in the additional 4 million sales we estimate will depend on a series of factors that are difficult to control. First, the $1 billion budget cap allocated for the program limits severely the number of customers able to take advantage of the program. Even if the budget were unlimited, some households would want to purchase new vehicles that wouldn't qualify due to poor gas mileage. Other consumers will simply not want to incur payments for an extra new vehicle, even if they can afford it, and yet others may not even be aware of the program. Even with those caveats, we believe that the potential of the Cash for Clunkers program is significant.

In the auto industry, there's a classic debate about what constitutes a "domestic" vehicle. Traditionally, it's been viewed that if you or I bought a car or truck from Chrysler, Ford or General Motors, then you were "buying a domestic." But not really. Is "domestic" based on where the headquarters of the car company resides or is it based on where the vehicle is made? In a July 2009 study from Cars.com, the Toyota Camry is ranked as the most "American" car, based on its sales, where it's built and where the Camry's parts are made. Hmmm. 

This makes me think about a recurring question we have been asked lately: "Is there a growing attitude to 'buy American'?" Some speculate that positive intent and sentiment to support ailing automakers like Chrysler and GM will develop. (Personal story: two weeks ago, my friends were talking about the recent auto dealer closings and one of them quipped, "This is the first time I've actually felt sorry for a dealer"). I don't think it's that easy to get people back on your side, unfortunately. Nor do I think the automakers believe it's going to be a cake-walk to capture certain customers. You have some very established behaviors in parts of the country that are not going to change, even over the course of a car buyer's next 1-2 purchase cycles. There are distinct areas in the U.S. (e.g., California) that are not inclined to embrace a Chrysler, Ford or GM product, given the long-standing presence of other automotive brands, such as Toyota and Honda, in those areas. 

In 2008, just under 70% of all new personal retail registrations in the New England region went to import brands (worth noting: in the U.S. auto market, it's conventionally viewed that the coastal regions are import hot-beds...some call it the "Import Smile" based on following the U-shaped curve of where import brands dominate). Automotive marketing can only influence sales trends so much. Appealing to the masses with a given brand has to take into account past impressions and experiences....and unfortunately, many consumers have poor perceptions of the domestic brands based either on personal experience or hearsay.

The financial strains facing so many of the auto companies today won't oblige the public at large to feel sorry for them. We pay a lot of money for a set of wheels and we want to invest in a vehicle that meets our personal needs. In geographic areas of the country where consumers have not been inclined to buy traditional domestic brands, it's still going to be a long road for those managing sales targets for Ford, GM and Chrysler. But regardless of where the car or truck is built or sourced, marketing messages should always be crafted to appeal to the local market in order to connect with the end buyer.