As rising gasoline prices became a pain in the pocketbook this year, Matt German decided it was time to buy a new car. So he traded in his hot-rod Ford pickup for a Ford Focus compact car and cut his fuel bill in half.
“I went from paying $80 every time I filled up to paying less than $40 and getting just as much distance out of a tank,” said German, 23, of Rochester, New York. “As gas prices were going up, I figured it was time to get out of that truck.”
Rising gasoline prices have gone from bane to boon for the recovering U.S. auto industry. In 2008, U.S. gas prices hit a record of $4.11 a gallon and contributed to Detroit’s downfall, as truck and sport-utility vehicle sales collapsed. With gasoline again approaching $4, buyers are returning to showrooms to replace old guzzlers with new, fuel-efficient models.
“It’s really astounding that you’ve gone from $4-a-gallon gasoline devastating sales to $4-a-gallon gasoline supporting sales today,” Mike Jackson, chief executive officer of AutoNation Inc., the largest U.S. car dealer, said in an interview. “This is a real change in consumer behavior that puts us in a much better place than where we were in 2008.”
Ford Motor Co. and Toyota Motor Corp. this month each raised their industrywide sales forecasts for 2012 following first-quarter sales that surprised on the positive side even as fuel prices rose to near-record levels. U.S. gasoline averaged $3.90 a gallon April 17, according to AAA. Prices will reach $4.01 in May, the U.S. Energy Department said on April 11.
“The impact of $4-a-gallon gas on the sales rate is neutral to a slight positive,” said Brian Johnson, Chicago-based auto analyst with Barclays Capital. “It certainly doesn’t seem to be paralyzing the consumer this time.”
Instead, it’s motivating consumers to return to dealerships to trade in cars that average 11 years old, according to Mark Fields, Ford’s president of the Americas.
“Four dollar-a-gallon gas is not as much of a shock as it was four years ago,” Fields said at the New York auto show this month. “People are doing the math and saying, ‘If I can get a lot better fuel economy, I’ll go out and buy that new vehicle.’”
This year, fuel mileage has become the most influential reason for purchasing a new car, surpassing reliability, a good deal and exterior styling, according to a survey by researcher J.D. Power & Associates.
“That is practically unprecedented,” said Tim Dunne, an analyst with J.D. Power in Troy, Michigan. “For the last decade, people have made vehicle dependability and reliability their top priority.”
As buyers return to showrooms, they’re finding all models are more fuel efficient. The average fuel economy of all 2012 cars and trucks is 24.5 miles (39 kilometers) per gallon, up from 21 mpg in 2008, according to automotive researcher Edmunds.com.
“That’s a 16 percent jump in fuel economy,” said Jessica Caldwell, director of industry analysis at Edmunds in Santa Monica, California. “So whatever you’re buying, it’s going to be more fuel efficient.”
That across-the-board improvement has led to less downsizing, Caldwell said. Sales of mid-size SUVs have held up and large pickups still account for more than one in 10 vehicle sales, she said.
“We still sell lots of crossovers and SUVs,” Tetsuo Iwamura, president of Honda Motor Co.’s U.S. unit, said in an April 4 interview. “The last time it hit $4, everybody had the reaction of no more big SUVs. I still remember the world downsizing, downsizing. These days, we don’t see so much downsizing, downsizing.”
This year’s run-up in fuel costs is setting off less panic in showrooms than in 2008 and 2009, when car buyers swarmed to small cars and sales of large vehicles fell. Compact cars, SUVs and trucks peaked at 42 percent of the market in August 2009, while large vehicles dropped to 16 percent that month, according to Edmunds. Last month, compact models accounted for 34 percent of U.S. sales, while large vehicles claimed 18 percent of the market, Edmunds said.
Instead of shrinking their cars, buyers are downsizing their engines. Cars and trucks with four-cylinder engines accounted for more than half of U.S. auto sales in the first quarter, the highest recorded by Troy, Michigan-based researcher LMC Automotive.
In 2003, just 29 percent of car buyers chose a small, 4-cylinder engine. That rose to 49 percent last year and reached 54 percent in the first three months of this year, according to LMC.
Ford now sells more F-150 pickups with V-6 engines than with fuel-thirsty V-8s. Until the 2011 model year, Ford hadn’t used a V-6 engine in the F-150 since 2008.
“Four years ago, the culture was that you couldn’t get a manly pickup without a V-8 engine,” said AutoNation’s Jackson. “Today, what matters is the performance it gets and the fuel efficiency, and they’re perfectly happy with a six-cylinder.”
While gasoline prices have moderated in the past two weeks, they will probably top the $4.11 a gallon record by mid-summer, said Jesse Toprak, industry analyst for TrueCar.com in Santa Monica, California.
“But we would need to get way above that for a major consumer behavior change,” Toprak said. “We’re used to $4 gas. It’s not a shock.”
So what would it take to keep car buyers out of the showroom? The new “freak-out number,” is $5, Jackson said.
“If we see that this summer, it’s going to be a problem for the economy and the consumer,” Jackson said. “But three years from now, if we gradually get there, people will have adjusted.”