Business WeeK: Weekend Cars Face an Uncertain Future

[Don]

AUTOS June 6, 2008, 2:22PM EST
Weekend Cars Face an Uncertain Future
Sales of coupes and convertibles have plummeted. With high gas prices and environmental concerns, can the fun car survive?

by Jim Henry

Sales of most coupes and convertibles are in the ditch, alongside big pickups and SUVs, as customers decide they can do without their "weekend car."

Driving has always been about more than transportation. It's been about freedom. It's been about fun. Fantasy. Children dream about bring old enough to get behind the wheel for the first time and, when they do, they don't imagine themselves driving a family sedan. They see themselves driving something sporty, preferably with the top down.

But now, with gas prices soaring into dangerously unfamiliar territory, many Americans, even the well-off, are reevaluating their love affair with the car. Is it environmentally, financially, and morally responsible to drive fun cars purely for fun? So, while many potential buyers may be secretly lusting after that red convertible on the showroom floor, more and more are averting their eyes and buying hybrids instead.

NO ONE NEEDS A CONVERTIBLE
Following several years in which convertibles actually outperformed light vehicle sales, in 2007, according to R. L. Polk, convertible registrations fell 8.9%, while the whole market fell 2.5%, to about 16.1 million sales. That trend looks as though it could accelerate in 2008.

Unlike the pickup truck or SUV, no one needs a convertible. Millions of people use their pickups for work, and millions of families need the extra space they can find only in an SUV. But coupes and convertibles offer no such utility. They exist for only one reason: to go fast.

And just as big automakers such as Ford (F) and General Motors (GM) are finally realizing they must reduce their light-truck productions, many will also probably soon take an equally sharp knife to their coupe and convertible output. In some cases, they may shrink production. In others, they may cut entirely.

The impact of reduced sales of these types of cars will be felt differently by different carmakers. For Ford, the Mustang is important, but not its bread and butter. Sales of 134,626 Mustangs last year accounted for about 5% of U.S. sales for Ford.

But the trend is hitting luxury import brands the hardest, since they account for the biggest number of coupe and convertible models. For brands like Porsche (PSHG) and BMW (BMWG), coupes and convertibles have paid the bills.

Still, convertibles account for less than 2% of the total U.S. market.

Until recently, luxury brands have outperformed the rest of the market. That's starting to change. As the economic downturn and high gas prices persist, even wealthy people are tightening their belts.

"We always say, 'Everybody needs transportation, but nobody needs a Porsche,'" said Mick Pallardy, east region vice-president for Porsche Cars North America, at a May 28 press introduction in New York for the high-performance Porsche Cayenne GTS.

Year-to-date through May, Porsche's total U.S. car sales were down 28%. That is partly offset by sales of the Porsche Cayenne SUV, which are up 12.4%, bucking the general trend in SUVs. Overall, the brand's U.S. sales through May were down 14.8% from the year-ago period, to 12,436. Sales figures are provided by AutoData of Woodcliff Lake, N.J.

TWO-DOORS LIKE THE MERCEDES-BENZ
SLK-Class and CLK-Class are also off sharply. The more exclusive SL-Class is down slightly, too, but a face-lifted model appears to be turning that number around. May SL sales were up 60.4% from the year-ago month, to 1,083.

Coupes and convertibles are a volatile segment. The first full year of sales usually accounts for the high point of a model's shelf life, and the numbers then start deteriorating. On top of that, the small volumes make for big swings in percentage changes.

In such a small segment, a single model, like the recently updated Chrysler Sebring, can mask problems for the rest of the group. Through May, year-to-date Sebring Convertible sales were up almost 800% from the year-ago period, to 12,673. That includes sales to rental fleets.

Detlev von Platen, president and CEO of Porsche Cars North America, said in New York he's concerned that American consumers in an economic downturn will start worrying about what their neighbors think, and that could inhibit them from making flashy purchases.

"The perception of the customer is very important, what the other guy thinks," he said. "We are hoping Americans don't turn pessimistic,"

While it is unlikely that Porsches and other convertibles and coupes will disappear entirely, what is needed is for carmakers to adjust their thinking to the new realities. Just as they are adopting new technologies to make bigger vehicles more fuel-efficient, so too must they devise ways to keep cars fun to drive without sacrificing gas mileage. Would drivers ever go for a hybrid-powered Porsche 911 or a plug-in version of a Ford Mustang? In the future, they may not have any choice.

Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.