Lower Gas Prices No Help to Gas-Guzzlers

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Power, five of the seven segments with the fastest turn rates last month were compact vehicle segments. The fastest-selling of all? Compact crossovers and compact cars.

Year-Long Lag

That's not to say low prices at the pump have no effect whatsoever. It's likely that continuing low prices at the pump could help sales of large trucks and SUVs plateau, even if a revival isn't in the cards. "The rate of decline may slow for large SUVs," says Erich Merkle, director of forecasting for IRN in Grand Rapids, Mich., "We may very well see some stabilization."

Consumer opinion is also still influenced by extended price trends. Libby says internal research shows that major price shifts have to stay in effect for at least 12 months before fluctuations begin measurably affecting consumer buying habits. That is, if consumers have already turned away from gas-guzzlers, it would take an extended drop in gas prices, into early 2008, to sway their opinion the other way.

Customer loyalty, on the other hand, is more flexible. According to a J.D. Power report released last October, the seven-week decline in gas prices between mid-August and early-October, 2006, resulted in increased owner retention rates for thirsty pickups and SUVs. Despite the uptick in loyalty rates, Bob Schnorbus, chief economist at J.D. Power wrote in the report, "Most likely, consumers have fundamentally changed their perception of the importance of fuel prices in their purchasing decisions and will continue to shy away from larger vehicles."

More Than Gas Prices

Some analysts think hybrids, which were buoyed as trucks and SUVs sank, could be in trouble as gas prices fall. For example, hybrid sales last November fell to 19,000 from about 32,000 in August when gas prices were $3 a gallon. Since last August, gas prices have declined 27.7% and hybrid sales have fallen 31%. But federal tax policy could be having an effect as well. Tax credits worth more than $3,000 to buyers of Toyota's Prius gas-electric shrank to $1,575 on Oct. 1.

And analysts think those numbers will bounce back regardless of gas prices. "That factor doesn't take away from buyers that want to feel like they're doing their part, something for the environment," says Merkle. Toyota itself, which rarely misforecasts, expects U.S. hybrid sales to grow by 50% this year to roughly 300,000 units, thanks in part to more available models, including the new gas-electric Camry.

Still, the industry seems to have accepted—in its rhetoric as well as in its showrooms—the scarcity of gasoline. GM Chief Executive G. Richard Wagoner Jr., was stumping for alternative fuels last week in the wake of the company's announcement of the electric Volt concept. In its current design, that car can accommodate a supplemental combustion engine running on gas, diesel, or ethanol.

Pushing Alternative Energies

Speaking at the Automotive News World Congress last Tuesday in Dearborn, Mich., Wagoner said, "We run the risk of relying on the lowest-cost energy available on world markets without providing adequate support for developing alternative sources." He suggested that government would have to intervene, promoting alternative energy, "regardless of what happens to oil in the short term."

Other executives seem to share Wagoner's concerns. According to an industry survey conducted by the University of Michigan's Transportation Research Institute's Automotive Analysis Div., fuel prices are expected to rise drastically. Results showed that respondents expected fuel costs to rise to $4 a gallon by 2015 and to top $5 by 2020.

And as prices at the pump continue to fluctuate, that may very well mean oil producers and auto manufacturers are likely to remain out of step with each other for a long time to come.

Click here to see a lineup of the SUVs and pickups whose sales are likely to remain down despite lower prices at the pump.

Matt Vella is a reporter for BusinessWeek.com in New York.