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With Rising Gas Prices, Can Detroit Shift Gears in Time?

Car Keys and Money
Car Keys and Money

Gearing up for times like these are exactly the reason the Big 3 went through the painful restructuring of the last four years.

Automakers need to be nimble when the demand shifts and it will be shifting as prices at the pump move closer to $4 a gallon.

Right now, the national average for a gallonof gas is $3.64. It’s up 12 cents in the last week and up 27 cents in the last month.

Last month, (when gas was averaging around $3.37) January sales broke down to 51.3% being cars and 48.7% being trucks. This month, we’ll see an even greater shift toward cars. The question is whether the automakers are ready for that migration of buyers toward cars or to models with smaller, more fuel efficient engines.

Are they ready?

Michael Robinet, with IHS Automotive thinks so. “There’s no doubt the automakers have a lot more flexibility, especially Ford and GM. Look at the old Ford Atlanta plant. When it was running it could only make the Taurus and Mercury Sable. Now at Ford’s Dearborn plant they build the Focus, but can also blend in the C-Max and if they are pressed they could build the Escape at that plant.”

Adjusting for changing demand in engines might be a little trickier. Engine plants for all automakers are just not as flexible for a variety of technical reasons. Still, you can bet that the automakers are ramping up production of fuel efficient 4 cylinder engines. As for hybrids, there’s still plenty of capacity in the system so as demand for hybrid models picks up (and yes, it will) the automakers will be better prepared.

How this surge in gas prices plays out in the showroom still remains to be seen. Through the first half of February, traffic and sales were strong. Will that be the story for the second half of February when we’ve seen prices at the pump take off and consumer confidence being challenged? We’ll get a better understanding when monthly auto sales come out March 1st.

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