Monday, February 28, 2011

Dealers say oil spike has shoppers thinking small

As gasoline prices rise, auto dealers say fuel-efficient models are gaining popularity.


Automotive News -- February 28, 2011 - 12:01 am ET
Come in and buy a fuel-efficient Kia or Hyundai before the trade-in value of your gas guzzler tumbles.
David Brady, the owner of one Kia and two Hyundai dealerships in greater Huntsville, Ala., didn't use those exact words in his latest radio spots. But that was the gist of his message -- and he says it's working.
Some auto dealers were quick to use concerns about political unrest in Libya and elsewhere in the Middle East, and the resulting spike in oil prices, as a sales tool last week. Late last week, the national average price of a gallon of regular gasoline was $3.31, according to price tracker That was up about 61 cents from a year ago.
Concerns about Libya, which accounts for about 2 percent of world oil production, sent the price of the benchmark West Texas Intermediate crude oil surging to nearly $100 a barrel.
Last Tuesday, Brady sold two Kia Souls and a Rio to customers who traded in a 2004 and 2006 Chevrolet Tahoe and a 2001 Ford F-150 pickup.
Mike Omotoso, senior manager of global powertrain at J.D. Power and Associates, says consumers react fairly quickly to sudden, big shifts in fuel prices. At $3.50 a gallon consumers change their driving habits -- for instance, taking fewer trips -- he says. At $4 a gallon, they switch to more fuel-efficient vehicles.
A case in point is summer 2008, when oil prices peaked at $147 a barrel and gasoline prices reached $4 a gallon in some areas. Consumers switched from buying large SUVs to small cars such as the Honda Civic and the hybrid Toyota Prius, he says.
"Gas prices have been above $3.20 a gallon for a while now," Omotoso says. "If it persists into March, we can definitely see consumers buying more compact vehicles like the Ford Fiesta, Chevy Cruze and hybrids. Cars that get 40 miles to the gallon on the highway will be very attractive to consumers."
Bill Wallace, owner of Wallace Automotive Group in Stuart, Fla., handles 10 domestic and import brands. He is witnessing firsthand how quickly gasoline prices can influence the vehicles customers buy.
His sales of Cadillac Escalades and Lincoln Navigators have slowed, while the Hyundai Sonata and Elantra, Lincoln MKZ hybrid and diesel-equipped Volkswagen TDI have become "red hot," he says.
Even Mazda is seeing a lot more action, he said. Customers have become particularly interested in the small Mazda3, which gets up to 33 mpg, he said.
"Last night our Mazda showroom was packed," Wallace said. "It was like a delicatessen."
John Pitre, general manager of Motor City Auto Center in Bakersfield, Calif., said, "We'll change the mix of products that we offer." He sells Buick, GMC and Lexus vehicles.
He added: "Hybrid demand has been pretty weak the last couple of years, so you can count on that coming back to life."
Pitre's current inventory lacks GMC's more fuel-efficient products such as the Terrain and Acadia crossovers and diesel pickups. He plans to order more.
Mike Connolly, sales manager at Planet Chrysler-Jeep-Dodge in suburban Boston, said customers want to keep their bigger vehicles but shop newer versions of those models that often get higher fuel economy.
Connolly said dramatic consumer behavior will begin when it starts to cost more than $100 to fill the tank.
"What happened back in the summer of 2008 when prices were through the roof, it's nothing like that now," he said. "People want to get better gas mileage, but it's not a panic."

Laurén Abdel-Razzaq contributed to this report

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