Damian Dovarganes  /  AP
Gas prices have jumped this year to over $2 a gallon for regular, on average, hurting SUV drivers hard.
msnbc.com staff and news service reports
updated 3/15/2005 2:22:41 PM ET 2005-03-15T19:22:41

Sales of large sport-utility vehicles and other gas-guzzlers slipped in the first two months of the year in a sign that rising fuel prices could take a bite out of one of the auto industry's most profitable segments.

The full-sized SUV segment lost 1.2 percentage points of U.S. market share over the last two months and large pickups were down about 2 percentage points, according to Edmunds.com, which tracks the industry.

Fuel-efficient compact cars, on the other hand, gained 2.2 points in the same period.

A separate study from Power Information Network, which tracks daily auto industry sales, found a widespread decline in the share of people trading in their old vehicle for a large SUV.

“Rising gas prices are certainly a contributing factor to this trend,” said Tom Libby, senior director of industry analysis at Power. “We’ve had two dramatic increases in gasoline prices in the past year, and that begins to have an impact on consumers.”

Large SUVs and full-sized pickup trucks account for close to 80 percent of North American automotive profits for Ford and General Motors, according to one analyst, so any shift to smaller cars could spell trouble for the automakers.

“The concern, of course, is that the slowdown in these categories may represent the beginnings of a structural change, perhaps sparked by consumers’ concerns about higher oil or gasoline prices,” Deutsche Bank analyst Rod Lache said in a recent research note.

Gas prices have jumped this year to over $2 a gallon for regular, on average, and are likely to hit a record $2.15 this spring, according to the Energy Department.

Unit sales of full-size sport-utility vehicles like the Ford Expedition and Chevrolet Suburban fell 5 percent last year, and the trend appears to be accelerating. Libby of Power Information said trade-ins for large SUVs declined for 18 out of the 20 vehicle categories tracked by the company.

"This is not sort of a marginal pattern," he said.

'Crossover' craze
Consumers seem to be switching to luxury cars and luxury sport-utility vehicles. In addition to their poor gas mileage, large sport-utility vehicles are suffering from the popularity of more flexible "crossover" sport-utility vehicle based on car frames.

"The market is getting flooded with crossovers," he said. Among the models in the popular segment are the Chevrolet Equinox, Ford Escape, Toyota Highlander and Nissan Murano.

The higher gas prices already have hit GM and Ford stock because the two companies rely so heavily on SUV sales, Bank of America analyst Ron Tadross said in a recent research note.

GM’s U.S. sales of SUVs and pickup trucks declined 9 percent last month, while Ford’s sales in the same segment slipped 8 percent. Overall, both the automakers lost U.S. market share again in February.

However, Joseph Barker, manager of North American sales analysis at CSM Worldwide, said it was too early to say if the fuel price spike was responsible for the lackluster SUV and truck sales.

“I wouldn’t read too much into the first two months of this year,” he said.

While sales of GM and Ford trucks slipped in February, Toyota Motor Corp. and other Asian automakers reported increased sales in the segment.

Hurt by weaker sales, both Ford and GM raised cash rebates this month on slow-selling models, including SUVs and pickup trucks, to cut inventories of unsold vehicles.

In addition to higher cash discounts, Ford extended its offer of interest-free financing for terms of up to 60 months on the Explorer and Expedition SUVs, which suffered a sales decline of 19.1 percent and 13.8 percent respectively last month.

GM, meanwhile, said it will offer extended warranties on its 2006 model-year Hummer SUVs,  whose sales have declined 8.3 percent so far this year.

“Whenever the gas prices go up, we see larger incentive spending by the manufacturers on large SUVs,” said Jesse Toprak, director of pricing and market analysis at Edmunds.com.

Reuters and MSNBC.com's Martin Wolk contributed to this story.

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