May 18, 2007

Americans switching to smaller vehicles as gas prices rise


2007 Honda Fit
2007 Honda Fit. Click image to enlarge


Westlake Village, California – Rising gasoline prices have some owners of large and midsize trucks trading to smaller vehicles, according to data from the Power Information Network (PIN), a division of J.D. Power and Associates.

Gasoline prices have surged more than 20 cents in recent weeks to a record nationwide average of US$3.10 per gallon, surpassing the previous record of $3.07 per gallon set in September 2005, according to the U.S. Energy Information Administration. As gas prices rise, owner loyalty in the large pickup and midsize and large utility vehicle segments drops, according to PIN data gathered between February and April 2007. Owner loyalty is measured by the percent of owners in any given segment who trade for another vehicle in the same segment.

“We’re seeing a broad, long-term-but gradual-movement to smaller vehicles,” said Tom Libby, senior director of industry analysis at PIN. “For example, during periods of high gas prices over the past two years, we’ve seen movement from larger to smaller SUVs. However, the total SUV pie remains largely intact.”

While rising gas prices are having a negative effect on large vehicle segments, owner loyalty has increased for small cars. Additionally, sales of small vehicles, including cars and light trucks, as a percentage of total new-vehicle retail sales, have risen from 26.3 percent in the first quarter of 2004 to 31.8 percent in the first quarter of 2007. Furthermore, PIN data shows that higher gas prices have had only a moderate impact on repeat purchases of midsize crossovers. The fact that several new midsize crossovers have just entered the market likely has softened the impact of rising gas prices on the segment, Libby said.

Not every new-vehicle segment has been affected by rising gas prices. For example, PIN findings show that owner loyalty for large and midsize cars, small crossovers, and small SUVs has remained relatively unchanged in recent months.

Libby noted that all of these trends are consistent with the patterns observed in spring 2006 when gas prices also rose.
Increased demand for smaller vehicles, coupled with higher gas prices, has also given four-cylinder engines a boost in powertrain market share. Four-cylinder engines as a percent of total retail sales has increased from 27.5 percent in April 2004 to 35.7 percent in April 2007.

While vehicles powered by four-cylinder engines are receiving a lift from rising gas prices, so are new vehicles powered by hybrid-electric engines. Hybrid vehicle sales have shown a strong correlation to gas prices. For more than two years, hybrid sales have increased as gas prices have risen and have decreased as gas prices have fallen.

Said Bob Schnorbus, chief economist at J.D. Power and Associates, “We’re expecting the small vehicle segments to continue to grow, regardless of gas prices, but higher gas prices certainly will help these segments relative to others.”

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