GO
Loading...

As Gas Costs Soar, Buyers Flock to Small Cars

Soaring gas prices have turned the steady migration by Americans to smaller cars into a stampede.

In what industry analysts are calling a first, about one in five vehicles sold in the United States was a compact or subcompact car during April, based on monthly sales data released Thursday. Almost a decade ago, when sport utility vehicles were at their peak of popularity, only one in every eight vehicles sold was a small car.

AP

The switch to smaller, more fuel-efficient vehicles has been building in recent years, but has accelerated recently with the advent of $3.50-a-gallon gas. At the same time, sales of pickup trucks and large sport utility vehicles have dropped sharply.

In another first, fuel-sipping four-cylinder engines surpassed six-cylinder models in popularity in April.

“It’s easily the most dramatic segment shift I have witnessed in the market in my 31 years here,” said George Pipas, chief sales analyst for the Ford Motor Company.

The trend toward smaller and lighter vehicles with better mileage is a blow to Detroit automakers, which offer fewer such models than Asian carmakers like Toyota and Honda. Moreover, the decline of S.U.V.’s and pickups has curtailed the biggest source of profits for General Motors, Ford and Chrysler.

Once considered an unattractive and cheap alternative to large cars and S.U.V.’s, compacts have become the new star of the showroom at a time when overall industry sales are falling.

Sales of Toyota’s subcompact Yaris increased 46 percent, and Honda’s tiny Fit had a record month. Ford’s compact Focus model jumped 32 percent in April from a year earlier. All those models are rated at more than 30 miles per gallon for highway driving.

Dave Strom of South Boston, Va., recently bought a tiny Smart ForTwo Passion Coupe, made by Daimler, the German automaker.

Mr. Strom also owns a pickup truck, which he uses mainly to haul his boat. When he runs errands, he drives his Smart, which he says is getting 45 miles a gallon.

“I had to smile the other day when I filled my tank for $18 and the guy next to me had a Ford Explorer and the pump was clicking past $80,” said Mr. Strom, a 66-year-old retired manager of a Chevrolet dealership.

Previous spikes in sales of smaller cars were often a result of consumers trading down during tough economic conditions or gas-price increases. When the economy improved or fuel prices dropped again — as they did after the oil-price shocks in the 1970s eased — buyers invariably went back to bigger vehicles.

But with oil prices expected to remain high for years, auto industry executives are seeing a turning point.

“The era of the truck-based large S.U.V.’s is over,” said Michael Jackson, chief executive of AutoNation, the nation’s largest auto retailer.

Sales of traditional S.U.V.’s are down more than 25 percent this year. In April, for example, sales of G.M.’s Chevrolet Tahoe fell 35 percent.

Full-size pickup sales have fallen more than 15 percent this year, with Ford’s industry-leading F-Series pickup dropping 27 percent in April alone. Sales of pickups, though, are expected to strengthen with the economy, because of their use as commercial vehicles.

The rise in sales of more fuel-efficient vehicles occurred during one of the industry’s worst months in more than a decade. For the month, G.M. sales dropped 23 percent and Ford slid 19 percent, while Toyota fell by 5 percent. The figures were adjusted for the fact that this April had two more selling days than a year ago.

Another bright spot in the numbers were sales of so-called small crossovers — which look like little S.U.V.’s and are based on car underpinnings.

Like small cars, they also accounted for about 20 percent of the total industry sales for the month, according to the research firm J. D. Power & Associates.

The analysis by J. D. Power also showed that 42 percent of all vehicles sold in April were equipped with four-cylinder engines, compared with 38 percent for six-cylinder engines.

How the downsizing of America’s vehicle fleet will affect fuel consumption is still largely unknown. When gas prices rise, as they are now, many drivers simply drive less to save money.

But there are some indications that the trend toward smaller vehicles will reduce the nation’s fuel use. In California, motorists bought 4 percent less gasoline in January than they did the year before, a drop of more than 58 million gallons, according to the Oil Price Information Service.

“That is an incredible year-over-year drop,” said Tom Kloza, the organization’s chief oil analyst. “Some of it clearly has to do with changes in the vehicle fleet.”

Baby boomers buying more compact cars

Small cars have traditionally been favorites of young, first-time buyers attracted by their low prices. But sales have been creeping up since 2005, particularly among older baby-boomers whose children have grown.

Crossover vehicles have also drawn in empty-nesters who have less need for a large car, S.U.V. or minivan.

“The first of the baby boomers turned 62 this year, and they’ve started downsizing,” Mr. Pipas of Ford said.

The latest crop of small cars and crossovers also feature the creature comforts and safety features once found only in more expensive models.

Factor in the economic benefits of fuel-efficient engines, and small cars have not only become practical, but trendy as well.

“This shift appears to be a permanent situation,” said Jesse Toprak, chief industry analyst for the auto information Web site Edmunds.com. “These new products have become more fashionable, just like small, fuel-efficient cars are in Europe.”

The low prices on small cars are also luring consumers who are tightening their belts in an economic downturn.

“We wanted to have good fuel economy, but we were equally concerned about the price of the car,” said John Shelby of Phoenix, who recently purchased a Honda Fit for $15,600.

Smaller vehicles, though, mean smaller profit margins for automakers. The drop in pickup sales, because of the slowdown in the housing and construction industries, has been particularly painful for Detroit’s Big Three.

“It’s just a difficult truck market for everybody, ourselves included,” said Mark LaNeve, G.M.’s head of North American sales. “By and large, people are just staying out of that market.”

Automakers ignore the move to smaller vehicles at their own peril. G.M., for example, is playing catch-up by introducing a dozen new cars and crossovers in the next few model years.

With federal fuel-economy regulations increasing to 31.6 miles per gallon by 2015, car companies have another incentive to speed development of smaller vehicles.

“If you look at where the automakers are putting their resources into now, just about everything is going into small cars,” said Tom Libby, senior market analyst for J. D. Power.

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More

Don't Miss

U.S. Video