Down is up, up is down
by Clay Chandler
Published: June 23,2008
In the world of automobiles, down is up and up is down.
According to market analysis from Edmunds.com, the price of downsized compact and mid-size cars is going up, while the cost of an upsized truck or sport utility vehicle is falling.
The price of a gallon of gasoline has risen to the point where cars that used to sit at opposite ends of the demand spectrum — with trucks and SUVs the most popular and numerous vehicles on the road — have switched places.
Along with a price jump of over 1.5% in April, Edmunds numbers show, small and mid-size cars are soaring in demand.
Reed Howell, general manager of Herrin-Gear Chevrolet in Jackson, says car buyers now are more interested in fuel economy than they are anything else. Out are the old Chevrolet standbys like the Tahoe SUV and the Silverado truck. In are the small Cobalt and the mid-size Impala cars.
“An Impala can get 30 miles per gallon on the highway,” Howell said. “Not a lot of people realize that.”
That’s a premium rate when compared with the Tahoe and Silverado, with EPA estimates for both coming in much lower than the Impala.
The gospel of good gas mileage is one that permeates automobile marketing, representing a far cry from the days when Howell says 70% of his dealership’s inventory was made up of large trucks and SUVs. Eventually, Howell expects Herrin-Gear’s inventory to be the exact opposite: 70% small to mid-size cars and 30% large trucks and SUVs.
The only thing keeping the market for large and heavy-duty trucks from completely drowning is the construction business.
“You’re still going to sell trucks because of all the construction that’s going on,” Howell said. “But the general public, the guy who uses his truck for sport or hunting, those sales are down dramatically.”
Up dramatically is the number of car buyers who consider purchasing a hybrid, a vehicle that uses a combination of gasoline and electricity. Edmunds reports hybrid consideration rose 71% in March and April of this year. Consideration for hybrid cars rose 101% for the same period.
The phenomenon is not confined to Mississippi. The average price of gas is now just more than $4 a gallon nationally. To combat soaring fuel prices and falling demand for gas guzzlers, automotive manufacturers are drastically cutting production of trucks and SUVs.
General Motors (GM), America’s largest auto manufacturer, announced at its stockholders meeting June 3 that it was shutting down four of its plants in North America that make trucks and SUVs, effective next year. GM CEO Rick Wagoner also announced that the company would increase production of its small to mid-size cars.
“Higher gasoline prices are changing consumer behavior, and they are significantly affecting the U.S. auto industry sales mix.”
Wagoner also told shareholders that GM would do a top-to-bottom evaluation of the Hummer brand, which offers the company’s sought-after SUVS but also has the worst fuel economy. A total overhaul of the brand, or a complete and partial sale, is possible, Wagoner said.
Nissan North America (NNA), whose plant in Canton builds the Titan full-size truck, Quest minivan, Armada full-size SUV and Infiniti QX56 full-size luxury SUV, announced June 9 that it was cutting its truck production to one shift and adding a shift to Altima production. Officials expect the changes to be fully implemented by September.
“With flexibility built into our systems, we’re able to quickly adapt to the changing landscape of the marketplace,” stated Bill Krueger, senior vice president of manufacturing, purchasing, supply chain management and total consumer satisfaction for NNA.
Regardless how the market changes and shifts, automobiles will remain in high demand. And manufacturers and dealerships will have to adapt.
“We’ll sell what we’ve got,” Herrin-Gear’s Howell said. “That’s what we have to do. We have to go with the market demand.”
Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .
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