Gas prices won't slow sales for SUVs
From the Detroit Free Press:
Gas prices won't slow sales for SUVs, vans
Analysts expect U.S. light-truck gains for May
May 26, 2004
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
Gas prices might be high and rising fast, but they aren't painful enough to push people out of their beloved pickups, SUVs and vans.
Despite the fact that rising gas prices are aggravating consumers -- causing some people to reconsider the vehicles they drive -- experts who have analyzed automotive buying trends for decades are predicting that sales of light trucks will continue rising this month.
Research firm J.D. Power and Associates is projecting that May sales will be 11 percent higher than they were during the same month a year ago for pickups, 2 percent for SUVs, and 7 percent for vans. That's with the help of massive incentives, of course.
Compact and midsize cars, despite being the most fuel-efficient, are expected to be up 3 percent and 2 percent, respectively. Full-sized cars, meanwhile, are projected to be down 5 percent.
"We're expecting all truck sales to be up," said Walter McManus, J.D. Power's executive director of automotive forecasting.
If true, that's good news for Detroit's automakers, who specialize in SUVs, pickups and vans. General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group make most of their automotive profits on the big vehicles and are just beginning to get their diesel-powered and hybrid vehicles off the ground.
With regular gas hitting an average of $2.05 a gallon nationwide on Tuesday -- 56 cents a gallon higher than last year -- it might be logical to think consumers would dump less-efficient trucks for thrifty cars with smaller engines, especially hybrids.
But McManus said he believes gas prices would have to go a lot higher -- perhaps as high as $4 a gallon -- before customers really start shifting to more fuel-efficient vehicles.
Several news reports on TV, in magazines and in newspapers have already declared a trend toward more fuel-efficient vehicles is under way.
Automakers and analysts challenge the reports, though some surveys seem to support a shift. One in six customers who plan to buy a new vehicle said they have already changed their mind about what vehicle they plan to purchase as a result of rising gas prices, according to a survey released this month from Harris Interactive and Kelley Blue Book.
What's more, there are waiting lists for the Toyota Prius and Honda Civic hybrids. Hybrid sales, with help from upcoming entries like the Ford Escape SUV, are expected to more than double to 100,000 vehicles this year. Hybrids combine a gas engine with an electric motor.
There are also plenty of anecdotes that suggest that people are trading down and asking salespeople about more fuel-efficient vehicles.
When his gas tab rose to $50 a week, Michael Smith of Grosse Pointe took action. As soon the lease was up on his Ford Explorer last month, he passed up another SUV even though it's ideal for his 6-foot-5 frame, wife and three kids. Instead, he bought a Chrysler 300C sedan, a move that lowered his car payment and doubled his mileage.
"I'm saving big-time now," said Smith, vice president of sales and marketing for a manufacturing consulting firm in Birmingham.
But trucks are still outpacing cars, McManus said.
"What we see so far is little or no impact," McManus said.
Another analyst, Ronald Tadross of Banc of America Securities, is expecting all auto sales to increase just 1 percent in May compared to the same month a year ago, and he expects truck sales to make up even more of the mix because U.S. automakers have been engaged in an intense incentive war to move a glut of trucks out of their inventory.
"This is despite the increase in gas prices," he concluded.
Of course, the experts could be proved wrong next week when automakers report their new-vehicle sales for May.
But don't bet on it.
McManus' and Tadross' views echo those of several automakers, who have access to daily sales reports.
"We look at it every which way we possibly can look at it, and quite simply, we are not seeing any impact," Paul Ballew, GM's executive director of GM's global market and industry analysis, said in early May. "We continue to see strong sales of large trucks."
Art Spinella, president of CNW Marketing Research Inc., said the biggest impact that gas prices seem to be having at this point is that they have encouraged consumers to take a wait-and-see approach to buying a vehicle.
That might have contributed to sluggish U.S. sales of vehicles in April. For the first four months of the year, truck sales were up 8 percent and car sales were down 2.3 percent.
While many in the news media have been declaring truck troubles for Detroit's automakers as a result of gas prices, automotive experts scoff at the notion that trucks are losing their popularity. While they acknowledged there may be some movement to smaller SUVs, they noted that's hardly an about-face, and it could be caused by other factors, such as anxiety about Iraq or the economy.
"It's an overreaction, and I would say there's some wishful thinking," McManus said of these reports. George Pipas, Ford's U.S. sales analysis manager, added: "I think people want to see it, but as of yet, we've seen the contrary."
There may be another reason automakers aren't biting their nails, too.
Gas prices are rising at a time when the economy is improving and household incomes have grown faster than gas prices. Automakers also know that their customers are better off financially than most of the population. So even if customers are griping nationwide about pain at the pump, it may be less of a pinch for people who can afford a new car or truck.
In 2001, the last year for which there is federal data, household income averaged $42,228. But the average income of a new-vehicle buyer that year was $74,300, according to J.D. Power.
Some media reports have pointed to the declining popularity of the Hummer, which gets a scant 11 miles per gallon, as evidence that vehicles that get poor mileage are out.
But Spinella noted that a 50-cent increase in the price of gasoline shouldn't really impact people who can afford a $50,000-plus H2. According to his data, the average household income of a Hummer buyer is $473,520.