For Once, Rising Gas Prices Could Help Auto Industry
By Michelle Krebs November 2, 2009Don't look now, but gasoline prices have crept up to their highest level of 2009. Typically that means trouble for the auto business, but if gas prices stay high, this time the outcome may be different.
Demand for fuel-efficient vehicles seems to be, drastically more challenging nationwide fuel-economy standards are looming and most automakers are drastically retooling the model lines to answer.
The one problem, most analysts have chided since fuel prices retreated after the summer, 2008 scare that started it all, is that if gasoline prices recede and stay at low levels, consumers will have scant incentive to purchase the new fuel-efficient vehicles needed to comply with the pending new Corporate Average Fuel Economy standards. And automakers' reconstituted lineups of smaller-sized vehicles can't be sold at a profit.
Only consistently more-expensive fuel, many industry pundits advocate, will insure a healthy demand for smaller vehicles, downsized engines and alternative-powertrain new models that are expected to cost more than today's counterparts.
The Obama administration announced this spring a nationwide fuel economy standard that mandates automakers achieve a fleet-wide fuel economy of 35.5 miles per gallon by 2016. But until earlier this year, petroleum prices had been near record lows. Since about the same time that the stock market hit its low for the year in March, however, the price of a barrel of oil has doubled and the value of the dollar has been in steady decline.
To achieve the new CAFE fuel-economy standards, a variety of efficiency-enhancing solutions will be in use, included downsized internal combustion engines with turbochargers and direct injection, advanced hybrid-electric vehicles and fully electric vehicles.
All these technologies are expected to be expensive - and the vehicles the propel will need to be smaller and lighter - leading to the notion that unless gasoline is expensive, it will be difficult for automakers to convince the public to pay premium prices for such vehicles - prices that not only pay for the technology itself but provide sufficient profit for the industry. - Bill Visnic, Senior Contributing Editor
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