Su Vs: Downsizing Those Monster Machines

Carmakers plan leaner models--just as gas prices bulk up

Even in Texas--where the bigger-is-better rule has long applied to trucks and fuel economy is usually an afterthought--consumers are starting to react to rising gasoline prices. At $1.27 a gallon on average, gas is 33% higher than a year ago. And, it seems, consumers are beginning to figure that the higher prices will stick: At Prestige Ford outside Dallas, the nation's leading seller of fullsize Ford pickups, F-150s with the smallest 4.2-liter V-6 engine and best fuel economy are now handily outselling trucks equipped with the brawnier 5.4-liter V-8, reversing previous sales patterns. Says Prestige owner Jerry Reynolds: "That's a gas mileage issue."

When the Lone Star state flinches, Detroit takes notice. After all, brisk sales of gas-guzzling pickups and sport-utility vehicles have produced the lion's share of Motown's record profits. And, with gas prices rising, analysts expect growth in sales of the biggest, most profitable SUVs, to start slowing. "Rising gas prices are a good reminder of the industry's mortality," says Merrill Lynch analyst John A. Casesa.

The first casualty: DaimlerChrysler's plans to build a gargantuan SUV called the Jeep Commander. In late December, DaimlerChrysler told suppliers it was scrapping the proposed sport-ute, BUSINESS WEEK has learned. Commander was to be built on the same chassis as the Dodge Ram fullsize pickup; but analysts and suppliers say higher fuel costs helped convince DaimlerChrysler that it would be better to focus on other, smaller models. The company won't comment.

If gas guzzling becomes passe, Detroit won't be totally unprepared. The Big Three have already been working on car-based SUV designs echoing the popular models that companies such as Toyota and Honda pioneered--mainly because they didn't have trucks to turn into SUVs. These relatively fuel-efficient vehicles, such as the Lexus RX 300, Toyota RAV4, and Honda CR-V, have caught on with U.S. consumers, and Detroit is ready to ride the trend.

Detroit's car-based SUVs will be much in evidence at the Detroit auto show, starting Jan. 9. The most eye-catching will be a raft of concept vehicles, including the Oldsmobile Profile and Jeep Varsity, stylish wagons designed to provide more room without the rough ride of big sport-utes. But there will also be other designs due to hit showrooms in the next several months. Ford Motor Co.'s Escape, a miniature Ford Explorer, is expected to debut in late spring. General Motors Corp. is unveiling the Pontiac Aztek, a flamboyant, car-based SUV aimed at Gen Y and slated to go on sale this summer. Chrysler's 1999 concept vehicle, the PT Cruiser, which echoes a 1940s gangster getaway car, arrives in showrooms this spring.

FED THREAT. Of course, not everyone is thinking small. On Jan. 10, Toyota Motor Co. will display its Sequoia, a fullsize SUV based on its Tundra pickup, and GM will unveil the Chevrolet Avalanche, a Suburban with a pickup bed. The added competition, along with new interest in car-based SUVs, should slow the growth of truck profits, but analysts reckon it would take a spike in gas prices, perhaps to $2 a gallon, to stop it.

Even if gas prices hold steady, Detroit's shift to more fuel-efficient autos also could come in handy if Congress follows through on threats of tougher federal fuel-economy mandates. Says David Garrity, auto analyst at Dresdner Kleinwort Benson Research: "If you look at the success of crossover vehicles, they can meet the regulations--and still push SUV sales."

Still, industry executives insist they wouldn't dream of letting the government's Corporate Average Fuel Economy (CAFE) rules dictate product design. "We tend to do the right things on product, and then get CAFE done later," says James P. Holden, U.S. president of DaimlerChrysler. But if rising gas prices and emerging truck-buying patterns in Texas are any sign, designing gas-sippers and not guzzlers could prove to be the right thing to do.

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