WESTLAKE VILLAGE, Calif. -

Rising gas prices and loosening of credit are both contributing to a consumer shift towards smaller vehicles, J.D. Power and Associates reports.

And while sales rates continued to rise during this past month, the company contends that not only are the types of vehicles being purchased changing, but also the types of buyers and the average transaction price, according J.D. Power and Associates’ Power Information Network (PIN).

And with U.S. new light-vehicle sales in March expected to total approximately 1.4 million units, according to LMC Automotive, OEMs and dealers alike are vying for the biggest piece of the market pie.

Commenting on the news, John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates, said, "Higher vehicle sales are obviously welcome news for the U.S. automotive industry and general economy.

"However, automakers are going to have to closely monitor shifts in segment demand and build accordingly,” he added.

The Turn Towards Gas Sippers

This spring, gas prices have risen right along with the sales rate in the first quarter of 2012.

Now, gasoline prices average $3.92 nationwide according to AAA’s Daily Fuel Gauge Report, with no end to the climb in site.

With that in mind, many consumers have turned to purchase smaller, more fuel-efficient vehicles. J.D. Power stressed.

“Through the first two months of the year, sales of sub-compact and compact passenger cars have accounted for approximately 25 percent of all retail sales,” officials noted.

“Sales of sub-compact vehicles have increased the most, up more than 35 percent in the first two months of 2012, compared to the same period in 2011,” they continued.

And the prevalent trend is on the radar of many.

Paul Taylor, chief economist of the National Automobile Dealers Association had this to say.

"With gasoline prices rising, small cars and mid-sized cars continue to be the two segments leading sales," Taylor said in an interview at the NADA/IHS Automotive Forum in New York City.

"If gasoline prices rise above $4.50 a gallon, the market is ready this year with many new small car offerings in adequate supply. That was not the case last year,” he continued, noting that this year’s market is in a better position to accommodate the shift than in the past.

The Credit Situation Improves

And as credit continues to improve, many consumers are taking advantage of easing restrictions, such as increases in 72-month loans. J.D. Power contends this loosening of financial credit restrictions are bringing a “new segment of buyers” out to the lots.

According to PIN data for the first two months of 2012, new-vehicle buyers with FICO scores in the "C" tier (scores ranging from 625–649) grew by 19 percent, compared with the same period in 2011, while buyers with FICO scores in the D tier (ranging from 06–24) grew by 23 percent during the same period, the company explained.

And due to this increase, J.D. Power reported the C/D-tier buyers made up a significant 15 percent of all retail sales in the first two months of this year. And the proportions of consumers with credit ratings in the A+-tier (720–999), A-tier (680–719) and B-tier (650–679) grew by rates of 7 percent, 11 percent, and 15 percent, respectively, during the same period, the company noted. 

“As a result, the average national FICO score of new-vehicle buyers has declined from a peak of 737 at the end of 2009 to 725 in the first two months of 2012,” officials added.

J.D. Power also pointed out that with the climb in fuel prices and shift to small vehicles, as well at the rise in financially less-qualified new-vehicle buyers, the average retail transaction price for new vehicles has fallen in the recent quarter.

With these buyers, who the company noted tend to be younger and with less money to spend, through the first two months of 2012, the average transaction price fell to $27,953, which was still well above historical levels, but lower than the peak at the end of 2009.

According to PIN data, the average retail transaction price of a new vehicle in the fourth quarter of 2011 was $29,223, an all-time high.

"Lower average transaction prices can clearly cut into vehicle profit margins," said Humphrey.

"But given the production rationalization the industry underwent during the recent financial crisis, most automakers and dealers are much more flexible and better prepared to adapt to quick changes in market demand,” he continued.

And on top of these factors, NADA notes that with aging cars dominating the highways, dealers may see an influx of shoppers in the near future.

With cars and trucks averaging nearly 11 years old, Taylor stressed that consumers are anxious to replace their aging vehicles.

And assisted by warm weather in many parts of the country, U.S. new-car and -truck sales have increased by 13 percent for both March and over the first quarter of 2012, the organization noted.

Small Vehicles Gain Popularity, Discussion about Engine Types Ensue

Apparently, as a result of high fuel prices and what J.D. Power calls “less discretionary spending due to consumers who became unemployed or underemployed”, not only are consumers buying smaller vehicles, but also the types of engines fitted to these vehicles are changing.

“According to PIN data, while large 8-cylinder engines were fitted in 18.3 percent of new light vehicles sold in 2008, these engines were fitted in only 14.6 percent of new light vehicles sold in 2011 and in only 12.7 percent of new light vehicles sold in the first quarter of 2012,” the company explained.

“Conversely, 4-cylinder engines were fitted in 42.7 percent of new light vehicles sold in 2008, but increased to 49.7 percent in 2011 and to nearly 54 percent of all light vehicles sold in the first quarter of 2012," it continued.

On top of this shift to 4-cylinder engines, J.D. Power noted that there has been an increase in the U.S. in the use of turbochargers in engines “as automakers try to deliver more horsepower from smaller engines.”

According to LMC Automotive, turbochargers were fitted in only 2 percent of gasoline or flex-fuel vehicles produced in the U.S. in 2008. This number increased to 9.5 percent in 2011 and is expected to more than double to 23.5 percent in 2017.

Furthermore, turbochargers are also being fitted to larger (6- and 8-cylinder) engines as well.

“As a result, while turbochargers were fitted in nearly 1 percent of all new light vehicles powered by gasoline or flex fuel produced in the United States in 2008, they were fitted in 7 percent of these new light vehicles in 2011 and are forecast to be fitted in approximately 19 percent of these vehicles sold in 2017,” J.D. Power concluded.

J.D Power Honors Cadillac, Mini for Customer Service Improvement

In other news from J.D. Power, the company honored two OEMs Wednesday at the New York International Auto Show for “the strong improvement of their models and dealership experience during the past three years.”

The company chose recognize Cadillac and Mini for “improvement in providing an outstanding customer experience.”

During the opening ceremonies at the New York International Auto Show, David Sargent, vice president of global automotive at J.D. Power and Associates, presented plaques to Cadillac, as the most improved among luxury brands for providing an outstanding customer experience, and Mini, as the most improved among mass market brands.

"This honor recognizes Cadillac’s and MINI’s dedication to continually improving the quality, dependability, and appeal of their models," said Sargent.

"This recognition also reflects their strong results in the sales experience, as well as strong performance when customers return to the dealership for service,” he added.

Don Butler, vice president of marketing at Cadillac, and Jim McDowell, vice president of MINI USA, accepted the plaques. Explaining just what the accolades were for, the company noted the recognition is based on the rate of improvement that each brand has made during the past three years in J.D. Power and Associates’ five core U.S. automotive quality and satisfaction studies: “Initial Quality Study (IQS); Vehicle Dependability Study (VDS); Automotive Performance, Execution, and Layout (APEAL) Study; Sales Satisfaction Index (SSI) Study; and Customer Service Index (CSI) Study.”

The company also shared that all automotive brands are showing improvement, but “Cadillac and MINI have improved more than others during the turbulence the industry has experienced since 2009.”

Just how did the two OEMs  go about fostering this customer experience?

"A strong commitment to improving customer satisfaction requires focus and alignment at all levels — beginning in the boardroom and extending to their employees in the plants and in their dealer networks," said Sargent.

Lastly, luxury brands Lexus and Porsche and mass market brands Mazda and Volkswagen were also recognized during the auto show presentation, and round out the top three most improved brands in their respective segments.