As gas prices rise, Americans buy more small cars

Why have I seen this before? From The New York Times:

DETROIT — 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.

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.

Okay, gas prices shoot up to $4.00 a gallon. This results in Americans spending around $80 to $100 to fill up their gas-guzzling SUV fuel tanks. So what are Americans doing in the face of these high gas prices?

They buy gas miser cars. And what is funny is that we've seen this type of behavior before. According to the NY Times story:

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.

Back in the days of the 1973 Arab oil embargo, Americans were caught driving Big Detroit Iron with big appetites for gas. The Detroit Big Three car companies of General Motors, Ford, and Chrysler, never bothered researching into smaller, fuel-efficient vehicles--vehicles that the Japanese car companies were selling on the market back then. When gas prices shot up, Americans suddenly flocked to the new Japanese car companies of Toyota, Datsun (now Nissan), and even Honda, leaving Detroit with a surplus of gas-guzzling cars that nobody wanted to buy.

Flash forward to today. The Detroit Big Three car companies were pushing big, gas-guzzling SUVs with high profit margins to American consumers, and yes, the American consumers were happily picking them up as gas prices remained stable during the 1990s and early 2000. But after the start of the U.S. war in Iraq, oil prices have shot up. Back in November 2002, the price of one barrel of Brent crude oil was around $24.60. Today, the price of Brent Crude oil is around $114.56. It is no wonder that gas prices have shot up to around $4.00 a gallon. The Japanese automakers were some of the first to successfully market hybrid-electric technology into their cars with both the popular Toyota Prius, and the Honda Insight in 2000. And yes, Detroit is still playing catch-up with the Japanese with incorporating hybrid technology into their cars.

Déjà vu?

Update: Here is an MSNBC story, reporting Detroit Big Three auto sales plummeting in April:

DETROIT - General Motors, Ford and Chrysler saw double-digit U.S. sales declines, but Toyota’s sales edged up 3 percent in April, as high gas prices accelerated consumers’ rush away from trucks and sport utility vehicles.

Weak sales were expected throughout the industry as gas prices rose to record highs. Automakers reported sales Thursday.

General Motors Corp. said its truck and SUV sales were down 27 percent, dragging down increases in car and crossover sales and GM’s best-ever month for hybrids. GM’s overall sales were down 16 percent for the month compared with last April.

“Consumer preference is shifting, and we’re shifting with it,” said Mark LaNeve, GM’s vice president of North American sales. Sales of GM’s midsize Chevrolet Malibu shot up 40 percent, but the long popular Chevrolet TrailBlazer SUV saw sales dip 73 percent.

GM said it produced 130,000 fewer vehicles in April due to an ongoing strike at supplier American Axle and Manufacturing Holdings Inc., which has affected 30 plants. LaNeve said the production cuts didn’t affect sales to individual customers because of the company’s large inventory of trucks and SUVs. But LaNeve said GM cut 15,000 sales to rental and commercial fleets in April because of the strike.

Ford Motor Co. said its SUV sales were down 36 percent in April compared with the same month last year, and its overall sales were down 12 percent. Car sales were down only 1 percent, buoyed by sales of the Ford Focus small car, which saw a 44 percent jump in sales. The Focus gets 24 miles per gallon in the city and 33 on the highway. By comparison, Ford’s largest SUV, the Expedition, gets 12 miles per gallon in the city and 18 on the highway.

George Pipas, Ford’s top sales analyst, said retail — or non-fleet — sales of passenger cars exceeded trucks and sport utility vehicles combined for the first time in at least 20 years.

“It’s such a new world for us, because as you well know, for the better part of the last two decades, we’ve been a truck and SUV company predominantly,” Pipas said. “So this requires a big shift in our culture, in our training and our thinking. Not only for Ford but our dealers.”

Toyota Motor Corp. said its car sales rose 12 percent, largely on the strength of the subcompact Yaris, which saw sales rise 46 percent and the hybrid Prius, which was up 54 percent. Toyota’s truck and SUV sales dropped 8 percent.

Again, American consumers are being turned off by the gas-guzzling SUVs that have been Detroit's mainstay for possibly 20 years. And again, they are turning towards the popular Japanese hybrids like the Toyota Prius, and the subcompact Yaris--of which both have had strong sales increases. And if you look at Toyota's sales, their truck and SUV market has dropped by 8 percent, but their car sales have increased by 12 percent on the strength of the increased sales of both the Prius and Yaris. Toyota covered both the SUV market and the combined hybrid and subcompact market to balance out the drop in the SUV market with the rise in combined fuel efficient hybrid and subcompact market. Toyota increases their sales in the long-term. Compare that with the Detroit car companies, who were interested in selling high-profit, gas-guzzling SUVs to American consumers, and not making the investment into smaller cars or hybrids to cover the possible shift in car sales as a result of high gas prices. Detroit has never learned the lessons of the 1973 Arab oil embargo.