SKYROCKETING GASOLINE PRICES RAPIDLY CHANGING DRIVER AUTOMOBILE PURCHASING CONSIDERATIONS, SMALL CARS AND HYBRIDS WILL BENEFIT

Back in 2008, when gasoline prices topped $3 per gallon, many industry observers pegged the magic inflection point where consumers would turn away from big vehicles at $3.50. Indeed, 2009 was a great year for vehicles like Honda Civic and Prius, even as the economy dove into the sod. It looks like consumers may be heading into fuel sippers again, and analysts say that $3.50 magic number still holds water. Unfortunately for automakers whose profits come by way of larger vehicles, gasoline has surpassed $3.50 in a number of markets. 

In December, just as the economy began showing signs of life, gasoline hit $3. Since then, the trend has been up, with prices hitting $4 at the pump last week in places like Southern California. And a new survey from Kelley Blue Book looking at consumer sentiment and gas prices suggests that consumers have begun changing their vehicle consideration criteria because of higher gasoline prices and fears about the economy.

Last month, per the firm's study, four out of five car shoppers said that gas prices have influenced vehicle considerations. That reflects an increase of 11 percentage points over the survey in January. Kelley Blue Book says the national average for gas prices increased by 29 cents last month, and that 74% of the latest KBB.com survey respondents said they expect gas prices to rise more in the next 30 days.

The firm says if prices were to stay at around $3 per gallon, car shoppers likely would not make major changes in vehicle consideration criteria. But at the vehicle buying consideration criteria changes dramagically:  

• $3.50 per gallon - Half of consumers will feel that gas is so expensive it will affect their vehicle consideration 
• $4.00 per gallon, - 80% of consumers say their vehicle consideration will be affected. 
• $5 per gallon - Almost all car shoppers (95%) said that gas prices would affect vehicle consideration.

The current national gas price average is now around $3.39 per gallon, and Kelley Blue Book says consumer activity on the KBB Web site corroborates results from its survey. The firm says activity on its site in the compact segment of new cars has increased by 9% versus January, which is the largest increase of any segment. But hybrids have seen only a minimal gain of increased share 1% month-over-month.

Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book's KBB.com, said the increased interest in fuel-efficient vehicles and lower interest in "gas guzzlers" typically foreshadows corresponding changes in buying behavior.

And Nerad tells Marketing Daily that the change has not been gradual. "It's been precipitous," he says. "We saw a long lull [in consumer interest in compacts] through most of the recession when fuel prices were down, and there was, in fact, lots of interest in larger vehicles," he says. "But we have seen these new changes over the course of three or four weeks, when the price of gasoline has increased by 33 cents. There's a remarkable correlation when gas prices go up fast. It's like the frog in lukewarm water: it never jumps out if the heat gradually increases. But if you suddenly turn up the heat really fast, it jumps."

Nerad says that automakers are in a much better position now to address the latest gasoline spike, and are much more aware of it. General Motors CEO Dan Akerson said early in the year that he hopes to triple sales the Chevy Volt electric car, and that the company is in a much better position -- product-wise -- to deal with higher gasoline prices. "Ford has small cars, Chevy has Cruze, Hyundai has the renewed Elantra, and there are more hybrids than ever before," he says.

COMMENTARY:   I am happy to see that U.S. carmakers are getting their act together and producing smaller cars.   

The way I see it, driver's will probably buy a small sub-compact for the gas mileage, a hybrid for the low mileage and flexibility and all-electric if the price of gas goes to $5.00 per gallon.  Either way, the automobile industry is going to make money, bad economy withstanding.

Courtesy of an article dated March 7, 2011 appearing in MediaPost Publications Marketing Daily

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Comments

[Used Cars Fargo]

Of course car buying patterns are correlated with gas prices for the average American. Of course there will be those for whom money isn't a factor but gas is a big expense for the average family.

[merchant accounts]

Gets higher and higher, it's becoming a headache to me.

[Los Angeles Honda]

I live around 2 miles away from work. Even if gas was at $5 a gallon it wouldn't affect and it would not change the type of car I drive. My car gets 23 mpg on the freeway (it's a Mercedes) and it still works for me. I can understand that most people have longer commutes though so it coudl add up.

[jay]

oil price hike is a great factor in consumers budget. if oil price is increased and so is the basic commodities like food, clothing, etc... it is a chain reaction. the government must take an effort to reduce the oil price increase.

[fuel]

Nowadays, fuel is more expensive than in the past.