Thanks to rapidly rising gasoline prices, the automotive sky is falling. Ill-prepared automakers that failed to hedge their product lineups with small, fuel-efficient vehicles face being crushed by a change in consumer demand.
For years, environmentalists and others concerned about our nation's reliance on imported oil have preached the need to improve automotive fuel economy. To automakers that were busy reaping profits from the sales of big SUVs and pickups, it must have sounded more like the humming of gnats than a prophetic voice crying in the wilderness.
But now there can be no mistake because the market has changed. In the first four months of the year, retail sales of basic compact cars rose 35.3 percent from the year-ago period, while sales of large pickups and SUVs suffered double-digit declines, according to the Power Information Network.
And that was before the big run-up that drove the price of gasoline well past $4 a gallon and pushed diesel fuel toward $5 a gallon right before Memorial Day weekend.
Right after Memorial Day, some 90 percent of the U.S. dealers who had responded to an unscientific Automotive News poll reported that consumer demand for fuel-efficient vehicles has increased since the beginning of the year. Nearly two-thirds said the factory isn't supplying the mix of new vehicles they need to meet that demand.
Collectively, the Detroit 3 seem to be having the toughest time adjusting their model mixes to accommodate demand. They relied too long on profits from big, fuel-inefficient trucks, often citing consumer preferences for gargantuan vehicles.
But while the biggest demand shocks have been recent, there have been warning signs for years that consumer tastes were changing. Since early 2004, demand for four-cylinder engines has grown steadily, according to Power. Four-cylinders represented less than 30 percent of light-vehicle sales in March and April 2004 but more than 45 percent in the first half of May 2008, Power says.
Just a few months ago, some auto executives worried that new federal fuel economy standards would be tough to meet. But if fuel prices continue to escalate, consumer demand for fuel-efficient vehicles could make mileage mandates irrelevant, and that's how it should be in a market economy.