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Higher Gas Prices Create Higher Interest in Compact Cars

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author photo by Autotrader March 2011

Rising gasoline prices have gotten the attention of vehicle shoppers, who are starting to look for more fuel-efficient models.

Four out of five car shoppers, or 81%, said gas prices influenced their vehicle considerations, according to an online survey by Kelley Blue Book of 380 new-and-used in-market consumers in mid-February. That's up by 11 percentage points in January.

The compact car category's share of all new-auto online shopping on Kelley's kbb.com rose by 9%, the biggest jump of any vehicle segment from month to month. Surprisingly, perhaps, hybrid shopping on kbb.com only increased by 1% from January to February.

Kelley's Jack Nerad, executive market analyst, said many Americans aren't willing to pay a premium for hybrids, preferring a cheaper, fuel-efficient small vehicle instead.

He said shoppers' shift to smaller, fuel-efficient cars wouldn't have been so dramatic had gasoline not jumped by 33 cents a gallon over a two-week period. Americans have short-term memories when it comes to their vehicle choices, as Nerad has seen this sort of shift related to higher gas prices since the fuel shortages of the 1970s.

American auto shoppers' new penchants for better fuel economy models will manifest when the industry announces March new-vehicle sales in early April, Nerad predicted.

All grades of U.S. retail gas rose by 19.2 cents in a week, as of March 2, to $3.43 a gallon, according to the American Petroleum Institute. That's nearly 68% higher than a year ago and well above the just over $2.50 per gallon average of last June.

When gas prices hover around $3 a gallon, car shoppers don't usually make big changes in their vehicle considerations, Kelley said. But at $3.50 a gallon, more than half of consumers felt that higher expense would impact their model choice and at $4 per gallon that jumped to 80%.

In some states, like California, gas is already $4 a gallon or more, said Jesse Toprak, vice president of trends and industry insights at TrueCar.com in Santa Monica. "We are starting to see changes in buyer behavior," he said, after sales of new suvs and trucks outpaced cars in the past several months, mostly due to higher incentives.

Consumer consideration for fuel-efficient vehicles increased by 20% from the first week of February to the last, based on traffic on TrueCar.com. "It's very rare to see double-digit increases in any (vehicle) category" in the same month, Toprak noted. Although shoppers were looking mostly at models that get 30 miles to the gallon or better, they also investigated larger vehicles with the best-in-class mileage.

Southern California dealer Mike Sullivan, who owns 10 dealerships, isn't panicking, saying Americans' move to more fuel-efficient autos isn't like the frenzy of 2008. "It's a nice, comfortable, gradual shift."

In 2008, Americans moved quickly to bail out of their big suvs and pickups as gas prices steadily rose. Incentives on some big SUVs from Detroit automakers jumped to as high as $10,000. That year was the first time since 2000 that cars outsold SUVs and other light trucks in this country.

Richard Van Peer, commercial account manager at Walker Ford in Clearwater, Florida, said small business owners, who had previously gotten Taurus and Fusion models for their fleets, are now looking at the smaller Fiesta. Fleet customers with Expeditions are now considering the smaller Escape SUV. Other businesses are looking at F-150 pickups instead of the heavy-duty versions and values on those used, bigger pickups have started to fall in his area.

Van Peer is now seeing the highest interest ever from his fleet customers for the Ford Transit Connect, which arrived here in 2009. And he said his customers are all interested in Ford's new EcoBoost engine.

Van Peer said he started to see interest in more fuel-efficient models from his fleet customers several months ago when gas prices started to creep upward. "It's ramped up in the last few weeks."

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Higher Gas Prices Create Higher Interest in Compact Cars - Autotrader