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Cutting Off the Guzzlers

How $4 gasoline is changing the habits of drivers and car buyers.

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You would have to pry the keys of Allen Shepherd's 317-horsepower, 5.6-liter, V-8 Nissan Armada from his cold, dead hands. But even this S.U.V. stalwart knows he is fighting a rearguard action against the powerful rise of gasoline prices.

The owner of a home-health service in Clinton, Oklahoma, Shepherd switched to a more fuel-efficient model when he recently leased new cars for his employees. "I would say the decision was about 79 to 80 percent based on gas mileage," he says.

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Across the country, drivers who once flocked to Hummers, Suburbans, and heavy trucks are facing up to the grim reality of expensive gasoline. Prices have risen nearly 40 percent, to $4 a gallon in many places, and may remain elevated for some time to come. Some drivers, like Shepherd, are holding out where they can. But, after years of resisting compacts and other small cars, complaining they were too low to the ground, perhaps less safe, and lacking the heft to tote what might need toting, many vehicle buyers have surrendered, giving up the keys to the Tahoe or the Grand Cherokee and embracing the smallest of the small—the fewer cylinders the better.

"People are panicking" because of high gas prices, says Paul Mitchell, sales manager for Orlando Hyundai. "I've tripled my Accent sales."

"The small cars—the Accents and the Elantras—are just flying off the lot, while even six months ago people were still buying S.U.V.'s and full-size sedans," he says. "You don't need to be Sherlock Holmes to figure out what's going on."

It's easy to see why. Marlaina Napoli, a Connecticut teacher, says driving her big-block G.M.C. Envoy was costing her about $70 every five days. Last week, she bought a four-cylinder Nissan Altima, saying that gas mileage "was the No. 1 [reason] for buying a car."

Her fellow teacher, Tanya Mastoloni, went a step further, buying a 49cc scooter to replace her Audi Allroad Wagon. "It goes about 150 miles on one gallon of gas," she says, noting that the scooter has given her an added benefit: "I cut my commute in half because now I can take the back roads."
 
Last month, Kelley Blue Book Marketing Research found that higher gasoline prices are a strong consideration for nearly 60 percent of vehicle shoppers, an 11-point increase from the previous month. 

Compact cars now account for 35.6 percent of total new vehicle sales in the U.S. through April, compared with 26.5 percent in 2004, according to J.D. Power & Associates. Sales of large vehicles have slipped to about 24.4 percent of the total from just over 28.4 percent in the same time frame. Also, the number of four-cylinder cars sold has now risen above 40 percent, outstripping sales of both eight- and six-cylinder cars for the first time in years.

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"The movement toward smaller vehicles is very pronounced and very clear cut," adds Tom Libby, senior director of industry analysis for J.D. Power. "The small vehicles, the crossovers, and the subcompacts are all doing very well, while the large utility and large pickups are struggling."

Part of the reason for the decline in large vehicle sales is that manufacturers are now focused on providing smaller and smaller vehicles.

Ford Motor, for instance, plans to revamp its vehicle lineup, making a smaller version of its bestselling F-150 pickup truck and slashing its production of S.U.V.'s while ramping up the manufacture of its more energy-efficient models, like the Ford Focus.

But high gasoline prices are ultimately the force behind these changes. Automobile manufacturers, who have seen sharp declines in sales of trucks and S.U.V.'s, are switching production now to meet the growing, if less profitable, demand for smaller cars. It is a consumer trend that might be even stronger were it not so hard to unload the gas-guzzling behemoths that Americans have already purchased.

"A year and a half ago I paid $42,000 to $43,000 for my Chevy Suburban," complains Sonia Rose, one of the nurses at Shepherd Home Health who is currently shopping for a more fuel-efficient alternative. "Now they'll give me less than $30,000 trade-in for it. That's a huge loss."

The loss is even more pronounced when one looks at the amount of debt owed on many new cars. In a situation similar to what happened in the housing market, when credit was easy, many people bought more car than they can now afford.

"People being upside down on their vehicle—owing more than it's worth—is definitely an issue because people want to trade in their vehicles," says Kyle Northway, marketing and advertising manager for Jim Burke Ford in downtown Bakersfield, California. "If they are too upside down, we really can't help them. They won't qualify for credit."

Dealers say this is making some large vehicle owners hold off on buying a more fuel-efficient car, or causing them to just mothball their S.U.V. if they actually have the funds to buy a new high-mile-per-gallon model. But this has, in general, led to fewer car sales overall this year, compared with last year, and increased the push of incentives by manufacturers and dealers trying to move their inventory.

The most inventive try to turn the problem into a selling point.

For example, Chrysler's "Refuel America" promotion woos customers to specific models with the promise of a three-year supply of discounted gasoline. And one Missouri car dealer is offering customers a choice of a $250 gas card or a $250 credit at a local gun shop to spruce up sales.
 
Oddly, given the steep price of gasoline, the Missouri car dealer reports that most customers are still opting for the credit at the gun shop; a sign, perhaps, that gas prices need to move even higher to catch some people's attention.

The question going forward is whether high gas prices are here to stay. Some dealers are betting they aren't, and that when they come down, the road hog will reign supreme again.

"It may take a couple of years, but they will go back to their big vehicles," says David Howe, who's sold cars in Oklahoma since 1976. "This has happened several times over the 30-odd years I've been in business. All we are selling now are cars. They are trying to trade in those Escalades and Avalanches. But when gas goes back to $2.50, they will trade those cars back in on trucks."

More on Energy: Flying on Empty
 

 


 



 

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