Low Gas Prices Give SUV Sales A Boost, But Automakers Take Long View | KERA News

Low Gas Prices Give SUV Sales A Boost, But Automakers Take Long View

Jan 5, 2015
Originally published on January 6, 2015 7:07 am

Sales of cars surged in December, and analysts believe that the year's total will exceed 17 million, making it the fifth straight year of growth for the industry.

Cheap gas prices helped make that happen, as sales of trucks, SUVs and luxury vehicles rose rapidly. Jeep's sales, for instance, were up 40 percent on increased consumer demand for crossover SUVs. Meanwhile, demand for hybrid and alternative-fuel vehicles shrank.

Scott Painter, founder and CEO of auto sales website TrueCar, says those trends aren't necessarily good for the industry as a whole.

"There's no doubt that when you have these kinds of fundamentals in place that you open the door to bad behavior," he says. "When gasoline falls below $3, consumer interest in low-mile- or lower-mile-per-gallon vehicles, bigger vehicles, picks up."

Before the bottom fell out of the economy in 2008, car companies— especially the ones from Detroit — were addicted to the sales of bigger vehicles. When gas prices skyrocketed, that dependence nearly led to those manufacturers' destruction.

But Painter says that even though some of the hunger for bigger cars has picked up, Detroit executives may have have retained a lesson from their companies' near-death experiences.

"What you cleared out of the system in the last four or five years was 40 or 50 years of accumulated, perhaps, bad behavior," he says, and with the industry's last down year only a couple of years ago, there hasn't been much backsliding.

Plus, Painter says, while bigger vehicles remain more profitable, today's cars — no matter the size — are far more fuel efficient.

Stephanie Brinley with industry analyst IHS Automotive agrees that the industry has smartened up in the decade since it last hit the 17 million sales mark.

"The automakers in general have shifted to adjusting production for demand overall," she said. "So what will happen now is that if an auto manufacturer is seeing a vehicle not performing to expectations, they can adjust the number of vehicles that they produce."

That means that if gas prices rise again, the manufacturers will be caught with fewer huge vehicles in stock and can increase their production of hybrids faster.

Automakers also have to keep their eyes on the improved efficiency targets the EPA has mandated for 2016 and 2025, says Michelle Krebs of AutoTrader.com.

Besides, she says, this run on SUVs may also be sustainable beyond the drop in gas prices.

She says the continued health of the industry is tied far more closely to an improving unemployment rate, improving consumer confidence, low interest rates and greater availability of credit.

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MELISSA BLOCK, HOST:

Today was report card day for the auto industry, and it was a good one. Sales surged in December, capping a fifth straight year of growth for carmakers. Analysts expect final sales for the year to exceed 17 million, a figure that hasn't been reached in more than a decade. Cheap gas helped boost sales of trucks and SUVs and luxury vehicles. Today, the price of oil briefly tumbled below $50 a barrel. But as NPR's Sonari Glinton reports, low gas prices aren't necessarily good for the health of the industry.

SONARI GLINTON, BYLINE: Before the bottom fell out of the economy, the car companies, especially ones from Detroit, were addicted to the sales of big trucks and SUVs. When gas prices skyrocketed, the companies nearly lost it all. Well, now we have crazy low gas prices, and consumers are gobbling up SUVs.

SCOTT PAINTER: Well, there's no doubt that when you have these kinds of fundamentals in place, that you open the door to bad behavior.

GLINTON: Scott Painter is founder and CEO of truecar.com, an automotive sales website.

PAINTER: When gasoline falls below $3, consumer interest in low mile or lower mile-per-gallon vehicles, bigger vehicles, picks up.

GLINTON: Jeep, for example, was one of the biggest winners, as consumers picked crossover SUVs. Its sales were up more than 40 percent for the year. At the same time, hybrid sales and alternative vehicle sales took a hit in 2014. Painter says even though some of the hunger for bigger cars has picked up, he says maybe Detroit executives have learned a lesson from their near-death experience. And they haven't forgotten yet.

PAINTER: What you cleared out of the system in the last four or five years was 40 or 50 years of accumulated, perhaps bad, behavior versus, you know, we've only had a couple of years now since our last real recession in automotive.

GLINTON: Painter says even though bigger vehicles are more profitable, today's cars, no matter the size, are far more fuel-efficient. Stephanie Brinley, with IHS Automotive, says this 17 million is much healthier than the last time the industry hit 17 million cars a year. She says the industry has learned a very basic economic lesson.

STEPHANIE BRINLEY: The automakers in general have shifted to adjusting production for demand overall. So what will happen now is that if an auto manufacturer is seeing a vehicle not performing to expectations, they can adjust the number of vehicles that they produce.

GLINTON: So if gas skyrockets, then she says carmakers can in theory shift from making big SUVs to making small cars. Meanwhile, Michelle Krebs with autotrader.com says consumers only save a few hundred dollars because gas is cheaper. That's not enough to send them into the dealership.

MICHELLE KREBS: People keep focusing a lot on just gas prices. But that's not the full picture. There's a big economic picture at play here as well.

GLINTON: Krebs says the health of the auto industry comes not as much from cheap gas as from an improving unemployment rate, improving consumer confidence, low interest rates and...

KREBS: Credit was widely available. We saw a big increase in leasing. So that made vehicles available to more people on a wider spectrum of credit worthiness.

GLINTON: Krebs says the business model for carmakers has changed in the last decade. Carmakers can turn a profit selling far fewer cars. She says another big reason that carmakers aren't likely to return to their previous bad habits is...

KREBS: The automakers still have to meet fuel economy standards in 2016 and even more stringent ones in 2025. So that is not going to stop them from developing fuel-efficient vehicles.

GLINTON: Krebs says she expects consumers and car companies to enjoy the cheap gas while it lasts. Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.