Rush to Fuel-Efficient Vehicles Recedes, Edmunds.com Research Suggests
August 11, 2008
By Dale Buss
When gas prices were shooting past $4 a gallon during the second quarter, American car buyers quickly and overwhelmingly elevated fuel efficiency to their top priority, and their massive shift toward small vehicles shook the U.S. auto industry to its core.
But could it actually be -- with gas prices now sliding back toward a national average of just $3.88 a gallon and possibly going much lower - that car buyers already are rethinking their new obsession with high-mileage little cars?
Edmunds.com research suggests it is so. When gas prices began dropping in July, truck owners dramatically reduced the extent to which they cross-shopped in the other major vehicle segments - cars, crossovers and hybrids -- compared with June. SUV owners did the same thing but to a lesser extent, Edmunds.com research has indicated.
At the same time, in July, consumers' consideration of presumably verboten segments including large crossovers, minivans and sports cars began bouncing back nicely, while consideration of small cars and hybrids actually began declining from levels in June.
"It's human nature," said Jeremy Anwyl, CEO of Edmunds.com, based in Santa Monica, Calif. "There's been a rush to small cars, but that doesn't necessarily mean it's permanent. And in fact our data shows that the recent sensitivity consumers have toward gas prices still goes both ways.
"There's already been an abatement of a pattern that many people, in June, were announcing was permanent. Automakers made some big changes in their production plans based on what happened just during the second quarter.
"And so while clearly the long-term trend in gasoline prices is still upward," Anwyl said, "our data certainly calls into question whether the shift in buying patterns we've seen will even hold up during a few weeks of declining gas prices."
Spooked or Sober?
The run-up in gas prices from April through June spooked American car buyers into a manic rush to find the most fuel-efficient vehicles they could and to dump their gas guzzlers. So new-car buyers nearly abandoned the large-SUV and pickup-truck segments, grew lukewarm about crossovers even compared with the first quarter, sought out small cars, pushed OEMs' subcompact-car manufacturing capacity to the max, and completely sucked up supplies of Prius and of some other hybrids. All the while, overall sales tanked.
So automakers made some of the most precipitous and significant decisions ever about production cutbacks and segment reallocations. Each of the Big Three and even Toyota moved quickly and massively to slash pickup and SUV production and goose small-car output as much as they could.
But the latest Edmunds.com data indicate that the industry may well have rushed into these moves too soon, perhaps overreacting - along with the news media and other entities - to how American consumers plainly were responding to skyrocketing gasoline prices.
Pause-Giving Data
The possibility of an abrupt pause in consumers' rush to mileage-friendliness is suggested by at least two sets of new Edmunds.com data.
The first is information about cross-shopping by current SUV and truck shoppers, as measured by activity on Edmunds.com, one of the leading consumer-research sites in the auto business.
When gas prices were rising, American consumers leapt to consider more fuel-efficient segments in droves. In March through June of this year compared with September and October of last year, for example, 154 percent more pickup-truck shoppers cross-shopped hybrids, 16 percent more cross-shopped cars, and 11 percent more cross-shopped crossovers, while 4 percent fewer of those shoppers exclusively perused the truck segment.
But in July, 45 percent fewer truck browsers cross-shopped in the car segment than had in June, 46 percent fewer shopped crossovers, and 47 percent fewer shopped hybrids - while 37 percent more of them considered only a new pickup, compared with the previous month.
Meanwhile, there was the same trend, though less pronounced, among SUV shoppers. In March through June of this year compared with September and October 2007, 157 percent more of them cross-shopped hybrids, 12 percent more cross-shopped cars, and 6 percent more cross-shopped crossovers - while 4 percent fewer SUV considerers only looked at SUVs.
But in July, 11 percent fewer SUV lookers considered cars, 13 percent fewer pondered crossovers, and 27 percent fewer took a gander at hybrids, compared with June shoppers. Meanwhile, 13 percent more SUV considerers in July, compared with June, decided to shop only for new SUVs.
"These consumers appear to be feeling less pressure to cross-shop more fuel-efficient segments and are shifting slowly back to previous shopping patterns," noted David Tompkins, executive director of industry analysis for Edmunds.com.
Big Vehicles Snap Back
Even more recent data, for overall new-vehicle consideration by Edmunds.com visitors, supports even more broadly the possibility that plunging gasoline prices already are causing Americans to reconsider their preoccupation with fuel economy.
Consideration of hybrids on Edmunds.com was down 34 percent for the week ended August 3 compared with its peak in June. Similarly, midsize-car consideration was down 13 percent in the same comparison, compact-car consideration declined 18 percent, and subcompact-car consideration declined 7 percent. However, during the week ended August 3, consideration of those segments was still up 24 percent, 35 percent, 33 percent and 84 percent, respectively, compared with December of last year.
Meanwhile, most of the segments that had been hit hard during the second quarter, in terms of consideration by Edmunds.com visitors, had bounced back at least somewhat by the week ended August 3.
Large traditional SUVs drew 3 percent more consideration in that week compared with June, while consideration was still down by 19 percent compared with December. For large crossovers, consideration rose 24 percent the week ended August 3, compared with June, while still dropping 24 percent compared with December. For midsize SUVs, the numbers were a 15-percent increase compared with June and a 38-percent decline compared with December.
Large cars enjoyed 5 percent more consideration against June, but 20 percent less versus December 2007, the Edmunds.com data shows. For minivans, the numbers for the week ended August 3 were a 15-percent increase, and an 11-percent decline; for midrange luxury SUVs, a 16-percent increase and 13-percent decline; for premium luxury SUVs, a 14-percent increase and a 33-percent decline; for premium luxury cars, a 20percent increase and a 40-percent decline.
Breathing Space
Anwyl proffered at least a couple of reasons for the newly emergent trend that Edmunds.com measured.
For one thing, "Consumers went into a state of shock when gas prices went over $4 a gallon and kept going - and this kind of shock-induced behavior can't sustain itself over a long period of time. So consumers began to get used to those prices."
Second, Anwyl noted, many consumers began figuring out that they were moving somewhat irrationally in the auto market - for example, considering only four-cylinder engines when some six-cylinder-equipped models (albeit more expensive) actually get better mileage than some fours. Other consumers were "ready to get out of their Escalades and jump into Civics when they actually may have needed some of that space they had in the SUV," Anwyl said.
One thing that was not a factor in these trends was supply constraints that the industry increasingly has been encountering for hybrids and some subcompact cars. Such difficulties aren't part of this particular phenomenon because the Edmunds.com data measured consumer consideration - shopping around online - not actual purchases.
Instability Unleashed
Another factor in greater consideration by shoppers for SUVs and trucks very recently may be the record thousands of dollars in incentives and extremely low lease payments that OEMs now are offering on big vehicles in a desperate attempt to move them.
"It looks like some of the recent consideration changes may be due to this factor," Dr. Tompkins said. "But that doesn't appear to be the driving force - as evidenced by the fact that many vehicles with large incentive increases continue to register drops in consideration."
In any event, the recession now underway in gasoline prices has given American consumers some breathing room to reassess their automotive-purchase decisions, Anwyl said. Depending on the course of this trend over the next several weeks and months, he noted, OEMs also may have to reconsider production decisions that they've already triggered.
"Of course no one wants to stick his head in the sand," Anwyl said. "The industry recognizes that higher gas prices are a long-term trend, even though prices in the short term may have overshot. So I'm not sure what the model mix really will look like a year from now."
Moreover, stricter federal fuel-economy requirements will continue to require automakers to boost the mileage delivered by all their vehicles over the next several years.
"But what's going on now points to a bigger truth," Anwyl concluded. "Instability in the marketplace is probably the one thing that we're absolutely going to have to get used to."
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