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Tags: car | gasoline | SUV | sales

Small-Vehicle Sales Slump as Lower Gas Prices Aid SUVs

Friday, 31 October 2014 02:03 PM

The lowest gasoline prices in almost four years are giving U.S. auto buyers extra cash in their pockets and encouraging them to move toward larger vehicles, hurting sales of fuel-sipping small cars.

“The price of gas per gallon is drastically low. I’m really celebrating and enjoying that at the moment,” said Andrea Turner, a Tennessee mother who last week bought a 2014 Buick Encore sport-utility vehicle. The Encore has extra space to fit her 5-foot-11 frame and 10-year-old son’s soccer gear.

Sales of subcompacts such as the Ford Fiesta and Honda Fit fell 2.5 percent this year through September, while small crossover utility vehicles such as the Honda CR-V and Jeep Cherokee rose 14 percent, according to Autodata Corp. Though industrywide demand remains buoyant, the Honda Civic, Ford Focus and Dodge Dart are among small cars losing ground as low fuel prices help change the behavior and decisions of consumers.

Turner, for instance, can sometimes find gasoline for just $2.50 a gallon near her home in Antioch.

“You just feel so much better when you look at the pump, and you’re pleasantly surprised,” said Jeff Schuster, an analyst for LMC Automotive in Troy, Michigan, who sees a direct link between gasoline prices and small-car sales. “You say, ‘Maybe I’ll splurge on something and treat myself.’”

Regular fuel fell to a national average of $3 a gallon today, motoring club AAA said. That’s down 33 cents in October and the lowest since December 2010. Since reaching a high this year of $3.70 in April, prices are off 19 percent. Gasoline is poised to fall below $3 for the first time in almost four years, and this month’s percentage drop was the steepest since December 2008.

October Sales

Also pulling buyers away from small cars: better alternatives as automakers improve mileage across their fleets. Turner’s new Encore, for example, has a highway fuel rating of 33 miles (53 kilometers) per gallon. That should help reduce her spending of $200 to $300 a month for gasoline.

The trend helps consumers rationalize paying thousands more for a roomy, high-riding SUV than they would for a little car, Schuster said. With automakers due to report October sales next week, SUV sales growth has exceeded that of small cars in each month of this year.

“Right now, gas mileage is not that much of an issue for consumer choice,” said Greg Williams, new-car sales manager at Holman Honda of Fort Lauderdale in Florida.

October sales results, scheduled for release Nov. 3, may show a 5.6 percent rise to 1.28 million light vehicles, according to the average of eight estimates by analysts surveyed by Bloomberg. The selling rate, adjusted for seasonal trends, may rise to 16.4 million from 15.4 million a year earlier. August’s selling rate surged to 17.5 million, the highest since January 2006.

Deal Sweetener

Fiat Chrysler Automobiles NV, which began trading Oct. 13 on the New York Stock Exchange, is projected to lead the way with a 20 percent increase, trailed by Nissan Motor Co. at 11 percent, Honda Motor Co. at 8 percent and Toyota Motor Corp. at 6.4 percent, the averages of analyst estimates. Ford Motor Co. deliveries may slip 4.3 percent, and General Motors Co. may gain 3.1 percent, according to the survey.

While cheap gasoline isn’t the only force motivating people to buy SUVs, it can help close a deal, said Kevin Tynan, senior automobiles analyst for Bloomberg Intelligence.

“Incentives play a larger part, and as a sweetener the salesman can say, ‘This SUV gets 25 to 30 miles per gallon,’” he said in an interview.

Record Mileage

These days, the broader U.S. vehicle fleet is historically fuel-efficient, setting new miles-per-gallon records and emission lows. Driven in part by technology advances, new 2013 models achieved an all-time high average of 24.1 miles per gallon, Tynan wrote in a note. Fleetwide carbon-dioxide emissions were 369 grams a mile, down 7 grams from 2012.

The shift to SUVs from small cars isn’t having the devastating effect on American automakers that it did in the last decade, when demand for trucks and SUVs eventually collapsed, robbing the predecessors of GM and Chrysler Group of their most profitable sales and putting them on the road to bankruptcy in 2009.

Now automakers are building SUVs and small cars under the same roof and can just switch the mix of models on the assembly line, LMC’s Schuster said.

“A lot of plants are flexible now,” Schuster said.

Automakers will be less likely to dump small cars into low- profit rental car fleets, as they did a decade ago when factories were less flexible and labor contracts more rigid, Schuster said.

“You could see a little bit of balancing with fleet activity, but I don’t expect it to be abused,” he said.

GM Profit

GM reported third-quarter profit that beat estimates in part because North American customers flocked to pickups and sport-utility vehicles. The largest U.S. automaker’s operating profit rose 12 percent to $2.45 billion, driven by a 53 percent rise in domestic sales this year through September for the luxury Cadillac Escalade SUV and a 5.9 percent gain in Chevy Silverado pickup deliveries.

Toyota deliveries in the U.S. increased 5.7 percent through September, paced by a 26 percent surge in sales of its RAV4 sport-utility vehicle.

© Copyright 2021 Bloomberg News. All rights reserved.

The lowest gasoline prices in almost four years are giving U.S. auto buyers extra cash in their pockets and encouraging them to move toward larger vehicles, hurting sales of fuel-sipping small cars.
car, gasoline, SUV, sales
Friday, 31 October 2014 02:03 PM
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