Price Gap Widens Between Domestic and Import Automakers

The weak U.S. dollar has led to a decline in lower-priced imported autos and allowed Detroit’s Big Three automakers to increase their share of the domestic market. Last May, the dollar fell to a 17-month low against the euro and in mid-August, it fell to 17.95 yen, its lowest level since World War II.

According to the U.S. Bureau of Economic Analysis, the gap between the average price of an imported vehicle and the average price of a domestic auto grew to $7,614 this past August.

In addition to the weak dollar, Toyota and Honda have also had to contend with low inventories caused by the March 11 earthquake and tsunami. The depleted inventories caused them to scale back incentives in an effort to increase their profit margins, which can be extremely slim on small cars.

Uncertainty combined with their shrinking U.S. inventories and new offerings from GM, Ford and European automakers caused the defection of many previously-loyal American buyers.  Significant numbers of buyers also moved up from Asian-made small cars, like the Honda Civic and Toyota Corolla, to luxury vehicles from American and European automakers.

Nationwide Mutual Insurance Company chief economist Paul Ballew said, “It’s very hard to import, especially from Asia, small cars right now because of where the dollar is. If you look at luxury-car sales the last few months, they’re up double-digits from a year ago while small cars are down more than 20 percent.”

Adding to Asian automakers’ woes is the fact that Ford and GM have been able to close the quality gap in the past couple of years.  The 2009 J.D. Power and Associates new-car quality study found the number of problems reported by new Ford, Chevrolet and Toyota owners to be “statistically insignificant.”

Honda also received a black eye this past August when Consumer Reports denied the Civic its coveted “recommended” status.

IHS Automotive analyst Chris Hopson said he isn’t expecting to see Honda and Toyota engage in anything more than “usual year-end clearance promotions, along with perhaps some marketing activity” to recapture market share. According to Autodata Corporation, industry-wide average incentive spending in the U.S. fell to $2,498 during the first nine months of the year.

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