ADS FOR SMALL CARS PLUNGE ALONG WITH SALES IN SEGMENT: FORD COUNTERS WITH ESCORT ADS SANS THE BRAND

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Small cars are a tough sell in the U.S. these days, with buyers' attention focused on sport-utility vehicles, large pickups and, to a lesser degree, midsize cars.

The volume of small car sales has been drifting down since the mid-1990s, said George Pipas, sales analysis manager at Ford Motor Co. But they plummeted by 14% through March vs. the first quarter of 1997.

"I wouldn't spend much advertising small cars," said Tom Healey, a partner at consultancy J.D. Power & Associates. "I'd leave them in the [dealership] as an alternative to used vehicles."

Several carmakers have reduced ad spending on their small cars, according to Competitive Media Reporting data.

Expenditures for General Motors Corp.'s Chevrolet Cavalier totaled about $64 million last year, down about 13.5% from 1996; the Pontiac Sunfire got $19 million in media support in 1997 vs. $34 million in '96. Hyundai Motor America spent a scant $600,000 in measured media on its entry-level Accent last year, compared with $9.5 million in 1996, CMR reports.

GM LOSES MONEY

The U.S. is the only market where GM is losing money on small cars, losing $300 million in the segment in 1996, according to Automotive News. GM said earlier this month it will consolidate two to 10 car lines and close some North American plants if its market share doesn't improve soon.

Toyota Motor Sales USA recently announced it will drop the Tercel from its lineup. Media spending on that small car was $9.1 million last year, down 20.2% from '96.

The reasons for the sales decline, said Ford's Mr. Pipas, are the increased availability of used, off-lease vehicles; reasonable fuel prices; incentives on midsize cars; and the continued movement into SUVs and trucks. He projects that small car sales won't top 2 million this year. In 1997, sales fell 13% to about 2 million after hovering around 2.3 million in '96 and '95.

In 1997, Ford Division discontinued low-volume, low-profit vehicles, including the Aspire and Probe small cars.

Still, Ford's ad spending ran counter to the general trend. It upped media support for Escort by about 30% last year, to $62.5 million, CMR reported.

The reason: It introduced the sporty, two-door ZX2 version of Escort last year, and that pushed up advertising, said General Marketing Manager Darryl Hazel, who described the small car segment as "extremely competitive."

Its "Grab life by the wheel" campaign emphasized the ZX2 name with less focus on Escort.

INCENTIVES ON ESCORT

Like other carmakers, Ford is offering incentives on Escorts. But the marketer isn't advertising the lower-finance deals.

"We leave it up to our dealers to get the word out," either through their regional dealer ad groups or individually, said Mr. Hazel. The division's prime objective is to build the Ford brand.

"Before someone is interested in how much something costs, they have to have some understanding about the product's essence and product attributes," Mr. Hazel said.

Ford announced earlier this year it will drop the Escort name. Focus will replace Escort this fall in Europe and fall '99 in the U.S.

Demographics also are playing a role in the small-car sales decline, said auto consultant Susan Jacobs, president of Jacobs & Associates.

The number of households with people in their 20s and 30s has contracted and won't start to grow until the year 2000, when the baby boomer echo arrives, she projected. "That's when I think the turnaround [in small car sales] will come."

The shift from cars to trucks will continue, however, Mr. Healey predicted. J.D. Power projects truck sales will rise this year to 6.9 million, up 1.5% from last year. Car sales are expected to decline 3.6% to 8 million, he said.

MORE OFF-LEASE VEHICLES

The number of off-lease vehicles is expected to rise this year, too, providing an alternative to pricier new vehicles, he said. In 1998, some 4.15 million vehicles are coming off leases, a 61% jump from 1995.

Sales of new SUVs may be hurt this year because J.D. Power projects 800,000 of them will come off-lease in 1998, vs. 250,000 in 1995.

Incentives on all 1998 models are plentiful and many are being advertised. But Mr. Pipas disputes observers who believe the incentives signal weak demand.

"It's the competition, not weak demand. It's brutal out there," he said.

U.S. industry vehicle sales would slip about 20%, from about 15 million annually to 12 million if demand softened, he said: "No amount of incentives will keep sales up if there's weak demand."

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