Fluctuating Consumer Model Preferences

The second persistent manufacturing implication is fluctuating consumer model preferences, involving swings in the demand for vehicles with different properties. The most critical property that fluctuated was the class of vehicles demanded. Below I discuss how demand for different classes of vehicles fluctuated over time—from big cars to small cars and from trucks to SUVs and then CUVs. I discuss these fluctuations in the context of the persistent disturbances related to government regulations and energy challenges facing automotive firms over my study period.

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Figure 18 Customer Demand for Cars by Vehicle Type as Share of Cars – 1971 to 1989

The demand for different types or classes of vehicles fluctuated over the study period. Cars and trucks are both classified using criteria related to size and function. Figure 18 and Figure 19 show swings in demand for different classes of cars as a share of total cars over two

different time periods: between 1971 and 1989 and between 1990 and 2009.5 Figure 20

Similarly,

shows the swings in demand for different classes of trucks as a share of total trucks over the study period. Taken together, these figures illustrate how firms faced fluctuating consumer model preferences from year to year. To illustrate, the share of full-size cars dropped from 36% of automotive sales in 1971 to 16% of automotive sales in 1981. Correspondingly, sales of

5

Across different years in the Ward’s Automotive Yearbooks, different labels are used to describe different types of vehicles. For instance, the terms subcompact, compact, intermediate, and full-size or regular were used between 1971 and 1989. From 1990 onwards, the labels became small, middle, and large. Since some compact vehicles became classified as small and others as middle, I split my analysis into two time periods.

65 subcompact cars rose from 13% to 28%, and sales of compact cars rose from 21% to 26% in the same time period. There were significant year-to-year increases as well. Sales of subcompacts jumped 8% from 1971 to 1972 before dropping 5 points to 16% in the subsequent year. Between 1978 and 1979 subcompact sales rose 9 points from 14% to 23% of car sales. During the 1990s and 2000s, sales of small and middle-sized vehicles traded off from one another, fluctuating 10 percentage points over a decade.

Figure 19 Customer Demand for Cars by Vehicle Type as Share of Cars – 1990 to 2009

Trucks and SUVs experienced similar swings. Demand for pickup trucks has been in decline since the early 1980s, with SUVs and vans growing in the share of truck sales. SUVs grew from no share of trucks in 1982 to encompass 25% of vehicles a decade later. During the mid-1990s, SUV sales as a percentage of total truck sales grew another 10 points. Recently however, sales of SUVs have dropped off considerably from a high of 38% in 1998 to a current

66 low of 14%. Much of this swing can be explained by the increased share taken by a new class of crossover utility vehicles (CUVs) that has grown to encompass half of the market of trucks in 10 short years. CUVs possess a smaller footprint than SUVs, pickup trucks, or vans while retaining some of the cargo and handling characteristics, meaning that they have developed into substitutes for larger, more expensive trucks.

These three figures also display events associated with changing model preferences that occurred throughout the study period. Energy-related issues such as the Arab Oil Embargo in 1973 and the Iranian Energy Crisis in 1979 as well as spikes in retail gasoline prices appear to be associated with fluctuations in consumer model preferences from larger to smaller vehicles. Similarly, significant regulatory actions, including the launch and development of CAFE standards from 1978 through 1985 and the Gas Guzzler Tax launched in 1980, coincide with periods of increasing adoption of subcompact cars and abandonment of full-size vehicles.

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Figure 20 Customer Demand for Trucks by Vehicle Type as a Proportion of Trucks – 1982 to 2009

Fluctuating consumer model preference also includes changes in other vehicle properties. For instance, the use of four-cylinder engines rose quickly in the 1970s from 0.03% of cars in 1970 to comprise 39.85% of cars in 1981 before stabilizing at 50% from the mid-1980s onward [Ward’s Automotive Yearbooks]. In the same time period, the proportion of US cars produced that were smaller than 250 CID [cubic inch displacement] grew from 12.9% to 70.7% [Ward’s Automotive Yearbooks]. Similarly, shifts occurred in the move from rear-wheel drive to front- wheel drive vehicles. GM, Chrysler, and Ford produced few front-wheel drive vehicles prior to the CAFE standards being introduced in 1975. However, a report by Arthur Anderson and Co in 1980 predicted that the number of front-wheel drive cars sold in North America would grow to 50% by 1985 [Ward’s, 1980]. By the mid-1990s and through to 2009, only a handful of high- performance sports cars remained rear-wheel drive.

68 Fluctuating consumer model preferences were also pronounced when considering swings in the demand for individual vehicle models as compared with projections. For example, sales of Chevrolet’s Citation dropped from 209,545 in 1982 to half of that in 1983 following a NHTSA safety investigation into alleged brake problems. Over that year, Chevrolet sales increased by 5.8%, meaning that production of other models was increased to compensate [Ward’s, 1984]. At Ford, sales of the Mercury Villager minivan never came close to capacity production, and the joint venture with Nissan to produce these vehicles was ultimately called off in 2002 [Ward’s, 1999; 2003]. Similarly, in 1982 Chevrolet’s Chevette widely missed projections of 350,000 units, registering only 233,858 sales. In short, demand for different vehicles varied widely from year to year and, perhaps more important, frequently deviated from manufacturers’ expectations.