Buyers move toward better fuel economy
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After one of the biggest two-week jumps in gasoline prices on record, fuel economy has rocketed to the top of buyers' minds. But this time -- unlike the last gasoline price spike in 2008 -- the auto industry feels better positioned to cope.
Showroom sentiment, in light of turmoil in North Africa and the Mideast, is shifting:
-- About two-thirds of shoppers are looking harder at smaller or more fuel-efficient rides than they were just a month ago, according to an Automotive News survey last week of more than 300 dealers.
-- February's U.S. sales numbers showed a modest shift from big, powerful vehicles to small cars and crossovers with small engines.
-- Marc Hellman at Bob McDorman Chevrolet near Columbus, Ohio, says "a lot more" people are looking at cars than before.
-- Toyota Motor Sales U.S.A. sold more of the Prius hybrid last month than in any previous February.
General Motors and Ford are staying in the game -- which wasn't the case when they had aging, uncompetitive small cars in 2008. But the shift in mix will pinch profits.
So, unlike the last gasoline-price shock in 2008, Chicken Little has been kept at bay -- for now.
Because their lineups are better balanced now than at the time of the 2008 oil spike, most dealers aren't juggling their inventory mix.
Just 17 percent of dealers surveyed said they have trimmed their orders for pickups. Only a third are ordering more small cars. That's because dealers already have vehicles on their lots to satisfy fuel economy-conscious shoppers.
Many automakers believe that the work they've done since the last big price surge, and in anticipation of higher government fuel-economy standards, leaves them better prepared this time, with stables of more competitive small cars and crossovers.
GM, Ford, Hyundai and Honda are among the automakers launching new or redesigned small cars just in time to benefit from renewed buyers' interest.
"We're not doing anything differently today" in response to higher fuel prices, said George Pipas, Ford's chief sales analyst. Ford will have two recently redesigned cars rated at 40 mpg in highway driving when the Focus arrives this spring. "That is because we started doing things a whole lot differently three years ago," Pipas said.
Signs of a shift
The sales mix has shifted modestly. In February, small cars hit their highest share of the U.S. market in a year at 15 percent, according to the Automotive News Data Center. Pickups, which had a strong 2010, fell to 13 percent of the market, their lowest share in 10 months while SUVs were at 9 percent, a five-month low.
Crossovers, which dealers say offer a more fuel-efficient alternative to bigger SUVs, have held steady at around 21 percent of the market.
But sentiment expressed in the showroom and in Internet polling suggests that a more pronounced shift is in the works.
A consumer survey released last week by Kelley Blue Book found that gasoline prices are influencing vehicle considerations for 81 percent of shoppers, up from 70 percent in January.
About 57 percent of dealers surveyed in Automotive News' online, unscientific poll said shoppers want to get out of low-mpg vehicles. And 56 percent of respondents said more buyers were choosing smaller vehicles this month than in February.
More than half of dealers said the change in their shoppers' interests became noticeable in the past two weeks.
Still, a recovering economy and pent-up demand among business buyers has kept the light-truck market robust. GM and Ford saw truck sales rise more sharply than car sales during the first two months of the year.
GM attributes its 68 percent rise in pickup sales in February to a big increase in demand from small businesses and contractors. "What's driving truck demand right now is really a resurgence in the economy ... and pent-up demand," GM's U.S. sales chief, Don Johnson, said this month. "We don't see that changing."
Tipping point
Wes Lutz, owner of Extreme Dodge-Chrysler-Jeep in Jackson, Mich., said that in 2008, gasoline prices of $3.50 a gallon were a tipping point for a big pullback in larger vehicles. Not this time.
"It's not $3.50 because we were here before," Lutz said. "We're selling big vehicles."
Consulting firm IHS Automotive pegs the new trigger point at $4, a level breached last month in California. Paul Taylor, chief economist at the National Automobile Dealers Association, says it will take a level consumers haven't yet seen, $4.50, before they move in earnest to more fuel-efficient vehicles.
Kelley Blue Book says $3.50 gasoline will affect vehicle selection for more than half of shoppers. If gasoline hits $4, that figure jumps to 80 percent of shoppers; at $5, it's 95 percent.
Toyota spokeswoman Celeste Migliore concurred that there was a "significant shift" in buyer behavior the last time prices eclipsed $3.50, but she said she expects the reaction "won't be as dramatic" this time.
Fairer fight
Toyota and Honda thrived during the 2008 gasoline price spike as consumers sought fuel-efficient cars such as the Toyota Corolla and Honda Fit. The Detroit 3, more dependent on trucks and SUVs, saw sales plunge, which contributed to the GM and Chrysler bankruptcies.
It could be a fairer fight this time. GM and Ford not only have more competitive small cars, but hot-selling crossovers such as the Chevrolet Equinox and Ford Edge that could benefit if consumers abandon big SUVs.
One big question: Will uncertainty over fuel prices lead shoppers to delay a purchase until the picture becomes clearer?
February sales were the highest -- except for the inflated cash-for-clunkers months -- since before the recession. But more than half of dealers polled in last week's Automotive News survey said more customers now are delaying purchases compared with a month earlier.
Said GM spokesman Tom Henderson: "The biggest risk we see in terms of oil prices is the continued volatility.
"We think the price could be volatile through the entire year, and that creates uncertainty. If uncertainty remains with consumers for a long period of time, you could see some get on the sidelines until things get sorted out."
Jamie LaReau, Bradford Wernle and Mark Rechtin contributed to this report
You can reach Mike Colias at mcolias@crain.com.
