Gas Prices At a Tipping Point

Yes folks, we've hit the tipping point with gas prices.

Car Keys and Money
Car Keys and Money

Over the last year, as gas prices have steadily moved higher and people predicted gas would eventually climb above $4 a gallon the big question in the industry has been where is the tipping point?

At what price per gallon will we finally see car, truck, and SUV buyers shift to smaller more fuel efficient models? Well, folks it's here.

The national average for a gallon of gas is $3.74 a gallon according to AAA.

When I talk with a variety of people in the auto industry including dealers, executives at auto companies, and industry consultants almost all are seeing the same thing: buyers are now shifting to more fuel efficient models.

Considering the following:

In the last three months the percentage of overall retail sales consisting of pick-up trucks has gone from 13% to 10%. At the same time, small car sales have jumped from 19% to 25% of all retail sales. And this is just the beginning. Fuel efficiency is increasingly the determining factor for the type of vehicle people will buy.

Fortunately for the automakers, they are much better positioned to handle that shift than they were when gas prices spiked in 2008. Look at GM - 46% of its sales are now 4 cylinder models. What a huge change from a few years ago when only one out of every four GM vehicles had a four cylinder engine. At Ford, 40% of the F-Series pick-ups sold last month had 6 cylinder engines.

The development of far more fuel efficient engines explains why sales of pick-ups and SUV's have not fallen off a cliff. Yes, large SUV sales were up just 7.7% in the first quarter. But mid-size SUV sales jumped 42.3% and Small SUV's were up 27.6%. Both above the industry average (up) 20.2%. The bottom line: car buyers are are still buying, thanks in large part to a stronger job market. But now, with gas edging closer to $4 a gallon, they are looking for the more fuel efficient model.

Yes, my friends we are at the tipping point.

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