High gas prices fuel demand for smaller cars

updated 4:26 p.m. ET April 27, 2008

DETROIT - Scott Piechocinski roamed the rows of a CarMax dealership in Charlotte, N.C., on a recent afternoon, searching for something small to replace his son’s 2001 Nissan Pathfinder sport utility vehicle.

He’s not alone: As gas prices marched higher and now top $3.50 per gallon across the nation, car buyers across the country increasingly are abandoning SUVs and pickups in favor of smaller crossovers and cars.

“Fuel is money,” Piechocinski said. “You have to be realistic.”

The trend also is showing up globally and could rival the industry upheaval that followed the last big oil price shock in 1980. That earthquake caught Detroit automakers lacking in fuel-efficient models buyers were demanding and set the stage for the rise of Asian competitors such as Toyota and Honda Motor Co.

General Motors Corp., Ford Motor Co. and Chrysler LLC rebounded in the 1990s when fuel was relatively cheap and they piled up big profits selling SUVs and pickups. But now history is repeating itself — with a vengeance.

SUV sales down
Sales of large SUVs plummeted 28 percent in the first quarter this year, while subcompact sales rose 32 percent, according to Autodata Corp. Thriftier four-cylinder engines, once despised by Americans for their perceived lack of power, are selling in record numbers.

April sales results to be released on May 1 are likely to show an even more pronounced shift, predicted Jesse Toprak, chief industry analyst for the auto information site Edmunds.com. “That’s simply a function of the dramatic increase in oil prices that we’ve seen in the last few weeks.”

The trend away from SUVs started well before gas prices began climbing in 2005, in part because of the introduction of “crossover” vehicles — those with SUV styling but built on the more nimble and fuel-efficient car chassis. SUV sales peaked at 3 million in 2003; they’re expected to fall to half that number this year, and the change caught Detroit unprepared.

“It happened too rapidly for the American automakers to take sufficient action,” said Aaron Bragman, an auto analyst for the Waltham, Mass.-based consulting firm Global Insight. For example, 74 percent of the vehicles Chrysler sold in the U.S. last year were trucks and SUVs, compared to 42 percent at Toyota Motor Corp.

Now owners of SUVs and other gas guzzlers who’ve seen the price of a fill-up climb sharply are getting a second shock when they try to trade in their behemoths. Used car dealers don’t want the big vehicles on their lots anymore because hardly anyone is buying them. Some won’t take them at any price.

Small cars are now the largest segment of the U.S. auto market, accounting for 18 percent of new car sales. Last year U.S. consumers bought a record 2.8 million of them, and with sales up 4 percent in the first quarter this year, the record almost surely will be shattered.

Buyers want fuel efficiency
In the U.S., gasoline prices are driving the small car boom, but worldwide, it’s people in emerging economies gaining wealth, said Mike DiGiovanni, GM’s executive director of global markets and industry analysis.

“A middle class is starting to develop, and they’re trying to move up scale from smaller cars to the larger compact-size cars,” he said.

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