Automakers See Uptick in Interest in Green Cars as $4 Gas Looms
By Scott Doggett February 25, 2011
The price of gasoline in the U.S. was heading toward $4 a gallon for regular even before Arab uprisings in the Middle East sent oil prices above $119 a barrel this week - an amount we've not seen since the summer of 2008, when the average price for a gallon of regular in America reached a record $4.11.
While it's impossible to know the full impact the uprisings will have on long-term gasoline and diesel prices, many analysts now see $4 gas and resulting inflation in our future this year.
The affects $4 gas had on the U.S. automotive industry in 2008 were dramatic, with demand for fuel-efficient vehicles peaking, while interest for large trucks, big SUVs and other gas-guzzlers plummeted.
With the Middle East turmoil boosting the probability we'll see $4 gas again soon, we asked General Motors, Nissan, Mitsubishi, Smart, Tesla, Toyota and Honda - all major players in the alternative-fuel and/or gas-sippers space - to comment on gasoline-related developments they're seeing now and expectations they have for their fuel-efficient vehicles for the remainder of this year.
In general, automakers are already seeing an uptick in interest in their alt-fuel and/or most fuel-efficient models, and they are confident sales of those vehicles will increase significantly with the rise of gasoline and diesel prices. But, they predicted, that won't be the case with all fuel-efficient models.
General Motors
Tom Wilkinson, a spokesman for GM, which makes the Chevy Volt plug-in hybrid sedan, the GMC Yukon SUV, GMC Sierra pickup, Chevy Tahoe SUV, Cadillac Escalade SUV Chevy Silverado pickup, as well as various fuel-efficient non-hybrids, said GM doesn't expect to see a jump for the hybrid trucks.
"Those are very low volume models," he said. "For most customers, the highly competitive fuel economy of our mainstream trucks makes them a good choice."
The U.S. Environmental Protection Agency rates the 2011 Silverado XFE at 15 miles per gallon city and 22 mpg highway on regular gas. That makes for a pretty reasonable cost of operation for someone who needs a full-size work truck.
Additionally, most buyers of full-size trucks either need a truck or are wealthy enough that fuel prices aren't a major issue. The casual, middle-class buyers of the late 1990s truck boom are mostly gone.
Wilkinson said GM expects to see more of what the Detroit automaker is seeing now - strong interest in mid-size and compact crossover utility vehicles, which offer better fuel economy than the truck-based vehicles they replace.
For example, with up to 32 mpg highway, the 2011 Chevy Equinox and the 2011 GMC Terrain - both crossovers - "are flying out of showrooms as fast as we can build them," Wilkinson said. He said GM also expects to see sales of the Chevy Cruze compact continue to grow, adding that the Eco version of the Cruze, EPA rated at 42 mpg highway, should generate a lot of interest as fuel prices rise.
The Cruze will joined by the 2012 Chevy Sonic subcompact, Buick's first compact luxury sedan, the Verano, and eAssist versions of the Buick Regal and LaCrosse, with highway fuel-economy ratings of 37 mpg.
As a result, GM executives feel the company is "well positioned…no matter what gas prices do," Wilkinson said.
As for the Volt, he said GM is working with its suppliers to increase production. He said the model has been a huge hit with early buyers.
Regarding alt-fuel vehicles, which in the near term in the U.S. generally refer to vehicles that run on electricity, compressed natural gas or ethanol, Wilkinson said demand for GM's flex-fuel (i.e., cars and trucks that can run on a blend of 85% ethanol and 15% gasoline, or E85) is based on the price spread per mile of driving between E85 and gasoline.
Many of GM's vehicles are capable of running on E85, so demand for them could grow if gas reaches $4 a gallon, he said, because E85 tends to cost significantly less than regular gas (right now it's running about 50 cents a gallon less).
That said, E85 is not widely available in the U.S. and it costs less per gallon in part because it delivers less fuel economy so you need more gallons to go the same distance.
Toyota
Higher gasoline prices (and possibly fewer stories regarding stuck accelerator pedals and massive recalls) appear to be driving Toyota's sales of the Prius, the world's most-popular hybrid.
Toyota spokesman Joe Tetherow said that Prius sales in the U.S. are up 74% so far in February compared to a year ago - and are up 54% since the first of the year versus the first 50 days of 2010.
Although dealers aren't reporting unusual consumer demand or product shortages - the weak economy early last year helped push sales volume well below the normal pace - the February Prius sales uptick "has got to be at least partly because of people's awareness of what's going on in the Middle East and concern about rising gas prices," Tetherow said.
While other Toyota and Lexus hybrids aren't seeing the same kind of action yet, "people can sense what's coming," he said.
Honda
Honda spokesman Chris Martin said the company's dealers haven't been reporting any unusual increases in demand, although, as he pointed out, Hondas tend to be among the more fuel-efficient cars in the market and thus already attract people looking for fuel savings.
With overall sales weakened by the economy and competitive pressure from other automakers now fielding gas misers of their own, Honda's got a good supply of most vehicles in its pipeline and, said Martin, "it would take a pretty big increase" in demand for dealers to start running into shortages and backlogs.
Honda does anticipate more interest in fuel economy and alternative fuels, though, as gas prices continue rising.
Nissan
A similar situation exists at Nissan, which has a high percentage of fuel-efficient vehicles in its lineup.
"Our portfolio is still performing at a fairly normal rate," said Al Castignetti, vice president and general manager Nissan USA. He said in an interview that he believes gasoline could reach $4 a gallon by summer, if not sooner.
"The last time this happened, in '08, we obviously saw our Versa, Sentra and Altima Hybrid vehicles really pick up the lion's share of our sales and then our bodies-on-frames [a reference to trucks] fell off," he said, adding that he expects that as the price of gas approaches $4 a gallon, the market will shift to smaller, more fuel-efficient vehicles.
In a separate interview, Nissan spokesman Scott Vazin said it's tough for the automaker to say whether interest in its Leaf battery-electric vehicle has increased recently, because Nissan has temporarily stopped taking reservations in order to fill existing orders.
"I can say we've seen behavioral change before based on fuel/oil prices and traditionally $4 per gallon has been the tipping point," he said.
Castignetti said the only concern he has regarding the cost of fossil fuels is the possible impact it could have on the overall economy. He said that while high gas and diesel prices would result in a "tremendous amount" of people who would want to replace their vehicles with more fuel-efficient ones, he fears a reduction of disposable income would prevent many people from being able to do it.
As we saw in 2008, oil price hikes depress economic growth by raising the cost of raw materials made from petroleum - everything from asphalt to plastics. On Thursday, products giant Procter & Gamble said it was raising prices to cope with a run-up in commodity costs and turmoil in the Middle East.
Likewise, Safeway said Thursday that higher gasoline prices could squeeze profit margins in the current quarter. That puts pressure on the supermarket chain to raise prices.
Not surprisingly, the U.S. Agriculture Department on Thursday warned U.S. consumers they should brace for rising food costs this year as higher commodity and energy prices make their way to store shelves.
Turning the clock back to 2008, we saw higher jet fuel prices put pressure on airlines to raise ticket prices. Also in 2008, we saw higher diesel fuel prices drive up the cost of shipping and construction.
There's no denying that oil is the lifeblood of America's economy. Castignetti's concern that the cost of crude will drive up other costs, diminish disposable incomes and hamper Americans' ability to replace gas-guzzlers with gas-sipppers or alt-fuel vehicles such as the Leaf BEV, is well-founded.
Tesla
Speaking of battery-electric-vehicle makers, Tesla Motors spokeswoman Khobi Brooklyn declined to disclose particulars about Roadster sports-car sales or reservations for the upcoming Model S sedan, but used the opportunity to pitch the battery-electric vehicles' fuel savings.
"In California, it costs less than $8 to charge the Roadster's 245-mile battery pack from zero to full," she said. "At $4 per gallon, that distance would cost an owner of a conventional car with 20 mpg close to $50."
She said the same holds with the Model S, and pointed out the both vehicles will have lower maintenance costs than similarly priced sports cars and sedans.
"We calculate that fuel-cost reductions alone will save Model S owners approximately $8,000 over a 5-year ownership period versus comparable vehicles like the BMW 535i," she said.
While that might be true, anyone who could afford a Roadster, with a base price of $109,000, or a Model S, which will start at $57,400 (excluding government tax incentives), probably wouldn't be too concerned with the price of gasoline unless it climbed well above $4 a gallon.
Smart
The Daimler brand that produces the ForTwo city car with 40+ mpg highway is expecting its second consecutive month of year-over-year sales increases to start 2011, spokesman Rick Bourgoise said. "There is an uptick in interest at the retail level," he said.
Indeed, he said Smart began to see demand for the two-seater rise since December, when gas prices started a steady climb.
Bourgoise said that a direct correlation exists between rising gas prices and rising demand for the ForTwo, and noted that the automaker "rode the crest" of the record gas prices of 2008 and didn't see interest in the model weaken until early 2009, when gas prices had fallen and stabilized.
Mitsubishi
Mitsubishi Motors North America spokesman Maurice Durand said the Japanese automaker hasn't experienced more interest in its vehicles now than, say, a few months ago, in part because the company offers numerous fuel-efficient, 4-cylinder-powered vehicles and, like Honda, tends to draw a green crowd regardless of fuel prices.
But, he said, interest in Mitsubishi's i-MiEV battery-electric vehicle in the U.S. has taken off recently.
"We've noticed in the last month a lot more inquiries on the EV. It's easily doubled," Durand said of the model, which is scheduled to go on sale in the U.S. this coming Novemeber.
He also said the company would have its reservation system in place for the i-MiEV within 90 days.
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Senior Editor John O'Dell and Danny King contributed to this article.
Graphics courtesy of the U.S. Department of Energy.
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