SEMA eNews Vol. 10, No. 21, May 24, 2007

GAS PRICES CAUSING SHIFTS IN VEHICLE PURCHASES, SAYS J.D. POWER

Rising gasoline prices have some owners of large and midsize trucks trading to smaller vehicles, according to J.D. Power and Associates, which uses real-time retail transaction data from its Power Information Network (PIN) to gather figures. In a recent press release, it said gasoline prices have surged more than $.20 in recent weeks to a record nationwide average of $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 (EIA). 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 percentage 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,” says 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.”
 

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 notes 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 percentage of total retail sales, has increased from 27.5% in April 2004 to 35.7% 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. 

 

Additionally, PIN data shows that the retail turn rates—the amount of time a new vehicle spends on a dealership lot before being sold—decreased for both new and used small cars as the price of gas increased. In particular, these retail turn rates suggest that certain parts of the used-vehicle market, such as small cars, compact basic cars and small luxury crossovers, benefit when fuel prices rise. PIN and J.D. Power and Associates data suggest that the small-car market—both new and used—will continue to strengthen as fuel prices escalate.

“The recent strength of the small-vehicle segments—pricing, styling and an increasing number of new models—is receiving an additional boost from high gas prices,” 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.”

Source: J.D. Power and Associates. (May 16, 2007). “Power Information Network Reports: Rising Gas Prices Begin to Sway New-Vehicle Owners Toward Smaller Versions of Trucks and Utility Vehicles.” J.D. Power and Associates press release courtesy of PR Newswire.

 

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