$4 gasoline changes the industry
High-mpg cars are in; shipping costs are rising
 | John Krafcik: Compact-car segment grows. |
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Editor's note: An earlier version of this story misstated the average amount by which Ford Motor Co. raised U.S. vehicle prices on April 1. It was by $117, not $170.
NEW YORK -- At the New York auto show, Mazda and Kia joined the 40-mpg club, unveiling production cars they estimate will get 40 mpg in highway driving. Hyundai showed its third 40-miler. Ford introduced a large 2013 Taurus sedan with a four-cylinder engine producing 31 mpg. Chevrolet countered with the 2013 Malibu Eco, a version of the mid-sized sedan that gets 38 mpg.
It's clear that $4-a-gallon gasoline is suddenly changing emphasis in the industry.
Hyundai Motor America CEO John Krafcik said consumers already are altering their purchases. "Segment shifts are happening in a major way," he said. "The most visible shift is from mid-sized car to compact car."
He predicted that compact cars will displace mid-sized ones to become the largest retail-sales segment this year and said there may have been a shift of 2 to 3 percentage points from one segment to the other. "That's a lot: about 300,000 to 400,000 units," Krafcik said.
The impact of high oil prices goes beyond cars' mpg. Mark Fields, Ford Motor Co.'s president of the Americas, said the automaker has begun working with suppliers to cut shipping costs.
Commodity price increases could prompt Ford to take further cost-cutting action or raise prices, Fields said: "We'll have to offset what we can internally. But what we can't offset -- we then may have to take some price action."
Ford is not looking to switch component suppliers to save on freight costs -- yet. But if gasoline remains high, then as suppliers' contracts expire, Ford will consider local suppliers with lower shipping expenses for new contracts, Fields said.
Higher prices
This month Ford raised prices $117 per vehicle, on average, to help offset rising prices for fuel and other commodities. General Motors and Toyota Motor Corp. also raised vehicle prices in the United States in recent weeks.
"Oil is the biggest risk facing the economy," Nariman Behravesh, chief economist at IHS Global Insight, warned an auditorium full of industry executives last week in New York. Thirty days ago IHS revised its auto sales forecast to factor in the recent $10 increase in the price of a barrel of oil. The net result: 150,000 fewer U.S. auto sales this year, the firm now predicts.
By 2015, IHS forecasts, the United States will reach light-vehicle sales of 17 million. But if oil prices climb another $10 a barrel, you can subtract 8.3 million from cumulative 2011-15 sales.
Oil is selling for around $110 a barrel this month, up from $85 a barrel three months ago. Oil producers have said that the global supply is adequate; Saudi Arabia last week moved to trim output. Part of the current rise is blamed on trader speculation driven by political unrest across the Middle East and North Africa.
Rising fuel prices are prompting GM to consider boosting the number of cars it will outfit with its eAssist stop-start system, which increases fuel efficiency by up to 25 percent, said GM North America President Mark Reuss.
"We're certainly looking at that," Reuss said last week after unveiling the Chevrolet Malibu Eco. It will be the first Chevy to get eAssist, following several Buick nameplates.
 | Brian Carolin: Seeing a shift |
'Lead with fuel technology'
"We're going to lead with fuel technology that we know people will pay for in an environment of rising fuel prices," Reuss said.
GM might put eAssist on its hot-selling crossovers, the Chevy Equinox and GMC Terrain, and other vehicles. Reuss said GM is taking cues from buyers: A surprising 70 percent of those vehicles currently are selling with a four-cylinder engine rather an optional V-6, which he interprets as a sign of consumers' strong appetite for better fuel economy.
Reuss also ruminated on the possibility of a Malibu wagon, saying wagons could gain favor amid rising fuel costs after years of bowing to SUVs.
"As we see the environment change," Reuss said, "wagons may become a relevant point that we would want to leverage."
He added that it would be relatively easy for GM to make a Malibu wagon because the car is built on its global Epsilon platform, which makes it simpler to build variants.
"The turnaround time for that type of decision would be quite small because of the leverage we have on a global basis," Reuss said.
GM's ability to respond quickly to the oil-price increase with eAssist now and maybe a Malibu wagon later shows why the 2011 oil scare is causing less pain among U.S. automakers than the previous gasoline price run-up in 2008.
 | Mark Fields: Price pressure |
'Better prepared'
"The last time it got to this level it caught us all by surprise," reflected Dan Akerson, GM's CEO, speaking last week at the NADA/IHS Automotive Forum in New York. "We're better prepared today. In 2008, GM didn't have a world-class small car in its lineup."
Today, he said, GM has the small Chevrolet Cruze, selling at a volume of 50,000 a quarter.
Even Nissan North America, which met the previous gasoline crisis with its popular Versa and Sentra fuel-efficient small cars, has bolstered its position since then. Nissan has added a number of additional small, fuel-efficient vehicles: the four-cylinder Rogue crossover, the Cube, the small-engine Juke and the gasoline-free electric Leaf.
"We've seen the sales shift happening already in March and April," said Brian Carolin, Nissan's senior vice president for sales and marketing. "We are well-served with small, fuel efficient vehicles."
"Miles per gallon is the new currency, no question," he said. "And it will only accelerate as gas prices increase."
Mike Colias, Jamie LaReau and Mark Rechtin contributed to this report
You can reach Lindsay Chappell at lchappell@crain.com.
