Oil prices fall below $70; will SUVs come back?

Analysts, automakers don't expect SUV sales to recover

DETROIT -- A barrel of oil is down about 50 percent from its July 3 high closing price of $145.29. Gasoline prices are below $3 per gallon in most parts of the country. So, automakers can crank up those SUV factories again, right?

Wrong.

Even with oil closing last week at $69.87 a barrel, almost no one expects rapidly falling gasoline prices to restore pickup and SUV sales.

“The driver of new-car sales has and always will be job and income growth,” says George Pipas, Ford Motor Co.’s sales analysis and reporting manager. “There is scant little right now. In fact, they’re contracting, not growing.”

When October sales are tallied in two weeks, lower fuel prices won’t translate into higher sales of pickups and SUVs, Pipas predicts. The weak economy, not lower fuel prices, will steer buyers to less expensive vehicles, he believes.

“You’ll see a return of growth in small cars in October,” Pipas says. “We will see small cars grab a higher share of the segment in October than in September. We’ll see SUVs and trucks fall.”

Mark LaNeve, GM’s vice president of North American vehicle sales, service and marketing, says lower fuel prices might cause some consumers to consider putting a pickup or SUV back on their shopping lists.

But when October sales are reported, he doesn't expect much of a shift in demand for pickups and SUVs. And he has ordered GM's marketing team to keep pushing fuel economy in the company's advertising.

Says LaNeve: “Long term, there will be upward pressure on the price of oil. Consumers are seeking fuel efficiency in every segment.”

In the past week, the price of gasoline is down more than 33 cents per gallon, according to the Energy Information Administration. In early July, the pump price peaked at $4.16 per gallon, according to the government agency. That triggered a run on small cars and slowed sales of pickups and SUVs.

The tipping point for the move was $3.50 a gallon, Ford executives say.

“People are of the opinion that gasoline prices are what killed the SUV,” says Pipas. “That’s not true. What it did was accelerate the decline of sales in that category. They were going down anyway.”

At Toyota of Orlando in Florida, sales of vehicles such as the Sequoia SUV and Tundra pickup are way off, but 0 percent financing deals have some more customers kicking the tires of those vehicles now than were doing so in recent weeks, says Kate Frost, the dealership’s sales manager.

Frost says her sales team has fielded more calls on Toyota’s trucks and SUVs in the past few weeks. “That might be the 0 percent for 60 months, the gas prices or a combination of the two,” she says.

Ford’s Pipas says lower fuel prices are coming as consumers are looking for any good news.

Says Pipas: “It’s helpful to consumers. It’s like a tax cut. With rising interest rates and declining stock and home prices, consumers need all the help they can get.”

Patricia Scott contributed to this report

You can reach Richard Truett at rtruett@crain.com

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