This time, pricey gas may not spur small-car sales
Americans are used to seasonal shifts
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LOS ANGELES -- It happens nearly every year: Gasoline prices rise in the spring and sales of smaller cars spike through the summer. Pundits declare that car-buying habits are changed for good. Then gasoline prices fall, and consumers go back to buying full-sized SUVs and cars with larger engines.
Some industry trackers believe 2012 will be different because this time Americans will realize that cheap gasoline isn't coming back. But increasingly automakers seem to doubt that a permanent change in consumer behavior will ever occur.
As a result, they are focusing more on boosting the fuel efficiency of the entire vehicle lineup and not just adding small cars.
"I don't see this reshaping the buying public," said Bill Reinert, Toyota national manager of alternative fuel vehicles. "We've been through these cycles for two decades, but it's never really taken. I don't see this as a chance for a sales boom for the [Chevrolet] Volt and [Nissan] Leaf."
Shopping behavior tracked by Compete Automotive in Boston shows that sudden spikes in gasoline prices lead to a sharp rise in demand for small cars. More gradual increases in the prices have less effect, "but at some point, even a gradual creep to insane prices is likely to drive behaviors," said Lincoln Merrihew, Compete's managing director.
Reinert says that the sales-weighted fuel economy of new Toyotas has gradually increased over the past several years, basically following the trend of gasoline prices. But sudden purchase spikes in fuel-efficient cars have been repeatedly followed by troughs once gasoline prices fall again. Reinert says that charting Toyota Prius sales in relation to gas prices bears this out.
Retail sales of the redesigned Ford Focus compact were up 123 percent in February in California, a market that bore the brunt of suddenly higher gasoline prices. But will that sales rate hold should gasoline prices decline?
"We saw increases in small cars and fuel-efficient vehicles move in tandem with the price of gas," said Erich Merkle, Ford's U.S. sales analyst. "Volatility shifts buyer behavior."
A lot depends on how much and how quickly gas prices recede in the fall.
"It's a seasonal variation, and consumers are remaining a little skeptical that any price rise is going to be permanent," said Donna Miller, analyst with market researcher GfK Automotive. "We are not seeing a structural shift between the segments because consumers are conditioned to five months of gas price increases, followed by seven months of decreases."
Compact and subcompact cars represented 24 percent of the light-vehicle market in February, up from 19 percent last year, Merkle said. That continues a long-term trend toward smaller vehicles, up from 13 percent in 2004, with buyers cascading from larger cars to vehicles with smaller footprints or staying with the same nameplate but buying the smaller engine offering.
Eric Fedewa, director of global powertrain and components for IHS Automotive, says there are two tipping points.
When gasoline purchases reach 3 to 3.5 percent of consumer disposable income, consumers begin reducing their miles driven and choose the smaller engine in the car they want. But when gas surpasses 3.5 percent of disposable income, consumers choose smaller cars, Fedewa said.
The national average for gasoline purchases was 3.27 percent of disposable income in January, and higher in some states, he said.
Some analysts say gas prices don't have the effect on the pocketbook that they once had. Oil industry consultant Peter Wells of Neftex Petroleum said that when adjusted for inflation and gains in household incomes, gasoline prices would have to be $6.20 a gallon to equal the impact they had in 1985.
These days, automakers are positioning fuel-saving technology more as a cost-of-ownership benefit. Ford is pushing its EcoBoost turbocharged engines. The best-selling model in the F-150 full-sized pickup lineup has an EcoBoost engine. Later this year, the EcoBoost will arrive in the Explorer, Edge and Escape crossovers and the Fusion sedan.
"Internal combustion engines are getting so much better that there's not much of a difference [with hybrids] any longer," Merkle said. "The next-generation hy- brid has to be better from a fuel economy and pricing perspective. It's a game of leapfrog."
Installation of turbochargers, the primary means of generating more horsepower from smaller engines, is expected to increase from nearly 21 million global units in 2011 to almost 40 million units in 2017, according to IHS Automotive. Europe dominates the turbocharger market, but rising U.S. corporate average fuel economy standards means the U.S. installation rate will triple during the time frame.
"The entire industry is much better prepared for $5 gas than it was for $3 gas," said Al Castignetti, Nissan Division general manager.
And while zero-emission cars like the Leaf are part of Nissan's strategy, solutions such as weight-saving technology and better standard powertrains will give the entire lineup better fuel economy, Castignetti said.
Green-car skeptics point to weak demand for the Chevrolet Volt, which halted production for the second time in three months because of inventory overstock.
Chevrolet had 6,300 units of the Volt, or a 154-day supply, on March 1, according to the Automotive News Data Center.
Thayer Chew, Honda senior manager of product planning, said Honda owners cite "value for money" as their No. 1 reason to buy -- up from 6 percent a decade ago to 20 percent today. Fuel economy as the top purchase reason routinely bounces between 4 and 8 percent, although it jumped to 12 percent during the summer 2008 gas hikes.
Given upcoming corporate average fuel economy requirements, Honda "needs to maximize the fuel efficiency of our overall fleet," Chew said. "Some buyers need to have larger vehicles for large families or for towing. People are trending toward more fuel-efficient vehicles overall."
You can reach Mark Rechtin at mrechtin@crain.com. -- Follow Mark on 
