Higher Gas Prices Not Affecting Small Car Sales – Yet

In recent years, surging gas prices during the spring and summer have resulted in increased sales of smaller, more fuel-efficient vehicles. But many analysts are predicting that the current surge in gas prices will have little effect on the buying behaviors of U.S. motorists.

Toyota Motor Corporation’s national manager of alternative fuel vehicles Bill Reinert doesn’t think that higher gas prices will result in an increase in electric vehicle sales. Reinert said, “We’ve been through these cycles for two decades, but it’s never really taken. I don’t see this as a chance for a sales boom for the Volt and Leaf.”

Reinert says Toyota’s sales of the hybrid electric Prius have increased immediately following sudden spikes in gas prices, but have quickly fallen in line with falling prices at the pump.

Ford Motor Company’s U.S. sales analyst Erich Merkle has seen a similar correlation between small car sales and dramatic, sudden increases in fuel prices. “Volatility,” says Merkle, “shifts buyer behavior.”

Data compiled by Boston-based research firm Compete Automotive corroborates Merkle and Reinert’s statements. Historically, the company has found that sudden increases in gas prices tend to result in higher sales of small cars and hybrid vehicles. Gradual increases, however, have less effect. But the company’s managing director Lincoln Merrihew says, “At some point, even a gradual creep to insane prices is likely to drive behaviors.”

Most automakers are waiting to see how quickly and how far gas prices drop next fall before making changes to their production plans.

GfK Automotive analyst Donna Miller says, “Consumers are remaining a little skeptical that any price rise is going to be permanent.” She says, “Consumers are conditioned to five months of gas price increases, followed by seven months of decreases.”

Last month compact and subcompact vehicles accounted for 24 percent of all light vehicle sales in the U.S., up from 19 percent a year earlier according to Merkle. But he attributes the increase to the long-term trend of buying smaller, more fuel-efficient vehicles, not recent increases in prices at the pump.

IHS Automotive director of global powertrain and components Eric Fedewa says that when the cost of fuel accounts for three percent to 3.5 percent of consumer’s disposable income, they tend to modify their driving habits. When prices surpass 3.5 percent of disposable income, consumers begin buying smaller vehicles.

In January, gasoline purchase prices reached 3.27 percent of the average motorist’s disposable income in some states.

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