Sharply rising gas prices may accelerate sales of smaller vehicles

Nine out of 10 new car shoppers expect gas prices to rise sharply over the next month, and two-thirds of them say that’s influencing their thoughts on what to buy, according to a new survey.

Kelley Blue Book’s Market Intelligence Study found that consumers’ expectations of higher gas prices are creeping higher, with 87 percent anticipating sharp rises in a May survey, up from 66 percent in April.

The findings suggest that the U.S. auto market’s recent shift toward cars and away from trucks will accelerate this summer.

In May, cars accounted for 52.7 percent of new light vehicle sales, according to Autodata Corp., up from 51.9 percent in March.

The shift to smaller vehicles is likely to be further encouraged by a government “cash-for-clunkers” program offering customers cash vouchers of up to $4,500 to trade in old vehicles. Customers buying substantially more fuel-efficient models would benefit the most under the bill being hammered out in Congress.

But analysts say it’s unclear whether these shifts in customer behavior are permanent.

Last summer, the share of car sales increased to as much as 57 percent of the total when gas prices surged, but the market went right back to a roughly 50-50 car-truck mix when fuel costs subsided, said Rebecca Lindland of IHS Global Insight. “We did not see any long-term change.”

That is only likely to happen “if gas prices stay above a certain level — maybe $3 a gallon for months on end,” she said.

Alternatively, the government could change consumers’ behavior by increasing fuel taxes, as governments have done in Europe and other parts of the world, Lindland said. “But I’m not advocating those.”

U.S. gas prices typically rise in the summer, when people drive more. They now average $2.64 a gallon, up from $2.53 a week ago, and $4.06 a year ago, according to the roadside assistance organization AAA.

In Michigan, gas prices average $2.87, compared with $1.98 a gallon in March.

“With gas prices rising, combined with what happened a year ago in May, the consumer is skittish,” said Tom Libby, president of the Society of Automotive Analysts.

Kelley Blue Book, which polled 753 prospective customers in the second half of May, said a majority were reviewing their decisions because of rising gas prices. “In both April and May, more than 60 percent of new-car shoppers said rising gas prices have either caused them to change their minds or made them think about vehicles they normally wouldn’t have considered,” it said.

When asked to describe the changes they were considering, customers were most likely to opt for a smaller engine, followed by possibly buying a smaller vehicle.

Nearly three-fourths of the people who anticipate higher prices at the pump said that would probably lead them to change their spending habits.

“While we may not see the $5-per-gallon gas experienced in some areas last year, current economic conditions compounded by the pain at the pump may make $3-per-gallon gas a new threshold for car buyers — the point at which they change their mind about what vehicle to buy and how they spend their money,” said Jack Nerad, Kelley Blue Book’s executive market analyst.

source:Detnews