Is history repeating itself in the automobile industry? The latest data on vehicle sales suggest that it might be.
Auto sales hit the skids in September, sinking to their lowest level in more than 15 years, as the faltering economy and credit crunch combined to squeeze the business. But amid the carnage, sales of large pickup trucks and sport utility vehicles held their own, according to Edmunds.com.
Yes, you read that correctly: trucks and SUVs, the very same gas-swigging monsters that Americans have stampeded away from this year as gasoline prices rose to record levels.
Surprisingly, as the rest of the automotive market buckled last month, SUV sales held steady at their August level of 4.4 percent of the U.S. market, down from the all-time high but up from 3.5 percent in July. Meanwhile large pickup trucks accounted for 14.3 percent of vehicle sales, the highest level of the year and up from 13.7 percent in August.
September’s resilience follows surprise gains in August, when pickup truck and SUV sales rose 43 percent and 27 percent, respectively, compared with July. The reason for the rebound? High sales incentives and declining gasoline prices, according to Jesse Toprak, executive director of industry analysis for Edmunds.com, an automotive Web site.
“The data over the last few months show consumers are shallow — they’ll go and buy a large SUV when gas prices go down,” Toprak said. “So there will always be those consumers that like these vehicles, whether it’s because of their style or size, and they’ll be lured into buying them when incentives are high or gas prices slide.”
For the most part, 2008 has seen a strong shift away from large trucks and SUVs and toward smaller, more fuel-efficient cars as gas prices rose to a record national average of $4.11 a gallon in July.
Now that the economy is weakening, crude oil prices are dropping fast, and the national average gas price could fall below $3 a gallon in a matter of weeks, analysts say. Last week, the national average fell below $3.50 a gallon for the first time in six months, according to government figures. Randa Fahmy Hudome, a consultant on energy and a former Energy Department official, thinks it could head toward $2 a gallon next year.
“If the price of oil continues to drop — to $50 or $60 a barrel, which is really possible in 2009 — I think we’re going to see $2 gas again,” she told MSNBC Sunday. “In essence, I do think we’ll see a continuing trend in declining gas prices.”
Could declining gas prices return American drivers to their gas-guzzling ways? America’s love affair with big cars is almost as old as the automobile itself, and has only gotten more ardent in recent decades.
But as sales have slipped, automakers have ramped up the incentives in an aggressive bid to maintain production volume of some of their most profitable models. Incentives for large trucks and SUVs hit a record $5,953 per unit in August, according to Toprak.
Lester Lave, a professor of economics at the Tepper School of Business at Carnegie Mellon University, argues that high incentives, coupled with lower gas prices, may send the pendulum swinging back toward SUVs and trucks.
“The question is what do car buyers expect? If they think gas prices will continue to decline, we’ll probably see them go back to their old ways, but if they think the dip in gas prices we’ve seen lately is only temporary, they’ll probably continue to buy small,” he said. “So far, there’s no clear message on where gas prices are heading, so there’s no clear message to consumers about what they should do. In the meantime, automakers keep pushing those incentives hard.”
Toprak is skeptical the automotive market will ever go back to the late 1990s, when large SUVs and trucks were the most popular vehicles on the road. The move away from large vehicles is likely permanent as long as gas prices do not drop significantly, he said, but he does note that there appears to be a latent demand for large vehicles that’s sensitive to price.
“You will have these fluctuations when the price of gas goes down, or when incentives go up to record levels, but we need to see gas go down under $3 per gallon and stay there for six months to see the majority of the market go back to bigger vehicles,” he said. “But I don’t think the market will ever go back to the way it was in the late 1990s.”
“I think the type of vehicles people want to buy has permanently shifted,” he continued. “When gas cost $1 a gallon, I rarely heard people ask for the gas mileage of a car before they bought it, but now it’s the first thing people ask. And even if there’s a big decline in gas prices I think things will be this way for the foreseeable future.”
A shift back toward larger vehicles could be a costly blow to automakers that are spending billions to retool their production lines to focus on smaller, more fuel-efficient cars, Lave said.
In the 1980s General Motors spent billions to bring to market smaller, lighter vehicles that consumers, ultimately, did not want, Lave noted. Last month the Big Three U.S. automakers of GM, Ford and Chrysler secured $25 billion in low-cost government loans, mainly to produce more small, fuel-efficient cars and trucks.
“Everything that was accomplished over the summer with high gas and oil prices leading U.S. automakers to make smaller vehicles could disappear in a moment,” Lave said. “If gas prices go all the way back down to just over $1 per gallon their retooling would have been unwise because the consumer would not want those new, smaller, more fuel-efficient cars.”