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Automakers, analysts mixed on impact of gas

Alan Helfman, the manager of River Oaks Chrysler Jeep in suburban Houston, says he recently talked up diesel options to a customer who was worried about fuel prices, but he's also seeing plenty of customers who are snapping up gas-guzzling SUVs.
/ Source: The Associated Press

Alan Helfman, the manager of River Oaks Chrysler Jeep in suburban Houston, says he recently talked up diesel options to a customer who was worried about fuel prices, but he's also seeing plenty of customers who are snapping up gas-guzzling SUVs.

Helfman's experience is mirrored in the entire auto industry, where some analysts and automakers are sounding the alarm about gas prices and others are downplaying their significance.

On Tuesday, Chrysler Group President and Chief Executive Tom LaSorda said higher gas prices haven't had much effect on the company so far. LaSorda said gas prices would need to stay above $3 or $4 a gallon for six months to a year before the company would see any real change in buyers' preferences.

"Consumers just don't go from today having a vehicle to tomorrow saying, `I'm going to get rid of my vehicle and buy a new one,'" LaSorda said at a renewable fuels conference in Washington. "I wish they would and come to the Chrysler Group, but it's not that spontaneous. We don't expect major shifts from where we're at."

Others say there are already signs that buyers expect gas prices to remain over $3 a gallon for a long time, and that could wreak havoc on manufacturers who rely heavily on sales of sport utility vehicles.

George Pipas, U.S. sales analysis manager for Ford Motor Co., said sales of truck-based SUVs dropped 13 percent industrywide last year. Ford expected they would continue to drop this year at a much slower rate of 2 or 3 percent. But SUV sales already were down 7 percent in March, Pipas said.

"Our concern is that we might see another double-digit sales decline in truck-based SUVs," Pipas said. "The hoped-for stable segment in 2006 is not going to happen."

Analysts are predicting SUVs and trucks will continue to slide in April, although the rate could be slowed somewhat because manufacturers are offering increasingly large incentives on big vehicles, Bank of America analyst Ron Tadross said Tuesday in a note to investors. Tadross said incentives per vehicle were $1,650 higher on trucks than on cars in March, the widest spread ever.

"The gap is likely to go up in the future as consumers weigh in on higher gas prices," Tadross said. Automakers are scheduled to report April sales next week.

Auto analyst Erich Merkle with the Grand Rapids consulting company IRN Inc. said it's not just trucks and SUVs that could take a hit. He said consumers are increasingly in debt and are saving less. Putting higher gas prices and higher interest rates on top of that could hurt the entire auto industry, he said.

"How long can the consumer hold it together in that kind of environment?" Merkle asked. He added that high gas prices alone won't change buyers' habits, especially since consumers adjusted to that new reality after Hurricane Katrina.

That's been Helfman's experience. He says he hears occasional conversations about high gas prices but has seen far more people buying the Jeep Commander SUV, which gets about 16 miles per gallon in the city and 20 on the highway. Many of those buyers are Houston-based oil industry executives flush with cash.

"They say, 'I'm making so much money I don't know where to put it,'" Helfman said in a telephone interview. "I've never seen anything like this before."

Tom Libby, senior director of industry analysis at J.D. Power and Associates' Power Information Network, said statistics back up the notion that consumers aren't yet changing their habits.

In the first quarter of this year, Libby said, the percentage of people buying new cars and trucks with gas-guzzling V-8 engines was unchanged from the year before, at 25 percent. While there was a 2 percent increase in the number of buyers opting for fuel-efficient 4-cylinder engines, Libby said that was partly because there were more cars with that option, such as the Chevrolet HHR.

"Prices have to reach $4 a gallon, and until they are at that level we will not see any substantial change," Libby said.

Libby added that $3 a gallon is still far below the level consumers saw in 1980 and 1981, when gas in today's dollars was the equivalent of $4 a gallon and there were substantial changes in buying habits.

Kevin Reale, an auto analyst at Boston-based AMR Research, predicts General Motors Corp. could be hurt the most if gas prices stay at a high level, since the company is counting on a new lineup of SUVs being rolled out this year. So far, sales have been strong, with the Chevrolet Tahoe up 37 percent in March over the year before. But Reale believes gas prices could abruptly change that.

"Even the perception of being a large SUV could turn people off," he said. On the other hand, he said, GM is making a big push for its ethanol vehicles, which could attract consumers concerned about the nation's dependence on foreign oil.

Reale said it will take some time to sort out the impact of gas prices. One problem is that automakers tend to pile on incentives in tough times, which can temporarily mask things like economic slowdowns or gas price fluctuations.

"It's going to be a matter of time to see how vehicle sales go in the next three months," Reale said.