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Old 03-16-2011, 02:41 PM   #1
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Gas at $4: A Subcompact Sweet Spot?

Wall Street Journal, March 16, 2011
By Joseph B. White


Gasoline prices are rising toward $4 a gallon, the point at which auto-industry executives say they expect U.S. consumers to shift decisively from buying sport utility vehicles and trucks and embracing smaller, more fuel-efficient cars.

Auto makers say they are better able to adjust to higher pump prices than in 2008, when gasoline last rocketed above $4 a gallon and customers left unsold SUVs bleaching in dealer lots. Since then, manufacturers have rolled out more efficient vehicles and new fuel-saving technologies.

Still, keeping up with shifts in consumer behavior that can take place over a few weeks can be difficult for manufacturers that need years to overhaul their model lines.

Consider General Motors Co., which is still No. 1 by sales in the U.S. and has a scope of offerings?from the tiny Chevy Aveo to the hulking Cadillac Escalade EXT sport utility?that makes it a good proxy for what Americans are buying.

An analysis on behalf of The Wall Street Journal of GM's February sales by Truecar.com, an automotive shopping website, illustrates the challenge car makers could face if buyers' demands whipsaw in the face of volatile fuel prices.

Truecar's analysis of the cars and trucks consumers bought from GM last month found that those vehicles averaged just 21.1 miles per gallon.

Subcompact cars, small cars and midsize cars all accounted for 24% of GM's sales. Those cars had mileage ratings that averaged 28.5 mpg. Nearly 20% of GM's sales were of large pickups, with an average advertised fuel-economy rating of 14.3 mpg.

What would it take to boost the average fuel economy of the cars and trucks GM sells in a month to 30 mpg?a challenging, but achievable level that's more appropriate for a $4-a-gallon world?

Truecar estimates GM would have to push to 40% the share of subcompact, compact and midsize cars it sells. What's more, the average fuel economy for those cars would have to be 35.6 mpg. Large pickups would fall to 14% of total sales, and the trucks would have to average 21.9 mpg, an improvement of more than 50%.

In other words, many more would have to come equipped with more fuel-efficient six-cylinder engines, instead of the V8s that dominate sales in the segment now.

Shifting the ratio of V6 to V8 engines, or retooling plants to build many more small cars and fewer big ones, takes months.

Short term, the hit to GM's profits from such a shift could be significant. The sales disruption caused by the 2008 gasoline-price shock helped shove GM toward its filing for bankruptcy protection the following year.

"Matching our portfolio to the volatility in oil prices has always been a difficult proposition," says Greg Martin, GM's director of policy and Washington communications. "We are in a much stronger position than we were two or three years ago."

It's not that global car makers such as GM, Toyota Motor Corp. or Ford Motor Co. don't know how to deal with high gas prices: They do it every day in Europe, where motorists would consider $4-a-gallon fuel cheap enough for a driving spree.

What gives car makers fits?and makes it tough on car buyers?are gas prices that ride a roller coaster the way they've done in the U.S. since early 2008. With crude prices recently surging above $100 a barrel, the $4-a-gallon level has already been breached in parts of California. Yet on Tuesday, oil prices lurched down again on concerns that the economic impact of the Japanese earthquake would slow global petroleum demand.

"Volatility paralyzes customers," says Ford Motor Co. Chairman Bill Ford, adding they can be left wondering: "Am I making a decision today that I am going to regret six months from now?"

In the summer of 2008, when regular gasoline prices shot up, industry analysts declared the death of gas-guzzling SUVs. Motorists reacted by driving less and turning toward smaller cars and hybrids. Dealers, saddled with fleets of SUVs and large pickups ordered when gas was cheap, held fire sales to clear their lots and restock with more efficient models.

Then, gas prices collapsed, along with the economy. Consumers started driving more, and they went back to buying larger, less fuel-efficient models.

Demand for large vehicles has persisted. In February, the big Ford F-150 and Chevy Silverado pickups were the No. 1 and No. 2 selling vehicles in the country. The fastest-selling vehicle in Ford's new-vehicle fleet was the new Explorer, a large, family-hauling crossover wagon.

But, preliminary signals from the market suggest consumers are shifting direction again as gasoline prices rise. At Truecar, shoppers' online searches and page hits so far in March show a 31% increase in interest in subcompacts and small cars, and a 5% drop in consideration of large and medium-sized SUVs.

At rival shopping site Edmunds.com, 14% of shoppers looked at compact cars in early March, up from 12% in February.


http://online.wsj.com/article/SB1000...sonaljournal_1
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Old 03-16-2011, 07:29 PM   #2
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Re: Gas at $4: A Subcompact Sweet Spot?

Consumers are flighty and stupid, with tunnel vision and no grasp of the big picture.
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Old 03-17-2011, 04:56 AM   #3
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Re: Gas at $4: A Subcompact Sweet Spot?

theclencher..... BINGO. haha
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Old 03-17-2011, 03:10 PM   #4
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Re: Gas at $4: A Subcompact Sweet Spot?

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Originally Posted by theclencher View Post
Consumers are flighty and stupid, with tunnel vision and no grasp of the big picture.
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Old 03-18-2011, 09:05 AM   #5
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Re: Gas at $4: A Subcompact Sweet Spot?

Study says $4 gas prices will drive millions to public transit.
Mar 15, 2011

As gas prices increase, more drivers will get out of their cars and on to buses, trains and subways, a study released yesterday by the American Public Transportation Association (APTA) predicts.

How many?

?If regular gas prices reach $4 a gallon across the nation, as many experts have forecasted, an additional 670 million passenger trips could be expected, resulting in more than 10.8 billion trips per year.

?If pump prices jump to $5 a gallon, the report predicts an additional 1.5 billion passenger trips can be expected, resulting in more than 11.6 billion trips per year.

?If prices were to soar to $6 a gallon, expectations go as high as an additional 2.7 billion passenger trips, resulting in more than 12.9 billion trips per year.

Of course at $6 a gallon, it might be hard for buses to make their way through the streets because of the throngs of angry drivers shaking their fists and waving signs:

The government said yesterday in its weekly survey that a gallon of regular now averages $3.567 a gallon nationally, but it has hit $4 a gallon on average in California.

"We must make significant, long-term investments in public transportation or we will leave our fellow Americans with limited travel options, or in many cases stranded without travel options," said APTA President William Millar.
"Public transit is the quickest way for people to beat high gas prices if it is available."

Good argument, but it's going to be hard to get hard-core drivers out of their cars at any price.


http://content.usatoday.com/communit...blic-transit/1
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Old 03-18-2011, 03:26 PM   #6
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Re: Gas at $4: A Subcompact Sweet Spot?

When they have to choose between eating and buying gas they will change. But not a moment before.
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Old 03-18-2011, 03:39 PM   #7
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Re: Gas at $4: A Subcompact Sweet Spot?

I find it interesting that gas prices go up and demand goes down but then prices really don't go down. Hmmmmmmmm
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Old 03-18-2011, 04:29 PM   #8
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Re: Gas at $4: A Subcompact Sweet Spot?

Quote:
Originally Posted by philip1 View Post
I find it interesting that gas prices go up and demand goes down but then prices really don't go down. Hmmmmmmmm
THAT'S my observation with goods and services as well. but i can relate to the other view...somewhat.

was it john wayne that said(paraphrasing): life's difficult, but more difficult if you're stupid?
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Old 03-18-2011, 05:32 PM   #9
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Re: Gas at $4: A Subcompact Sweet Spot?

http://www.youtube.com/watch?v=EJRBQRwg1pI
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Old 03-18-2011, 06:56 PM   #10
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Re: Gas at $4: A Subcompact Sweet Spot?

There is inertia in prices...lowering demand does not always immediately lower prices. Changes to the supply side of the equation affect prices much more quickly, as well as increased demand, but reduced demand leaves people with stockpiles that they paid more for.
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