Rising gasoline prices prompt dealers to rethink SUV strategies
'Hoping for the best, but prepared for anything'
Laurén Abdel-Razzaq
Automotive News | December 28, 2010 - 3:03 pm EST
As gasoline prices rise, some analysts predict a drop in SUV sales and trade-in values at dealerships.
U.S. gasoline prices topped $3 a gallon during the past week, the highest level since October 2008, according to the U.S. Department of Energy.
Crude oil reached $91 a barrel on the New York Mercantile Exchange on Monday, causing nationwide pump prices to increase 7 cents a gallon to an average of $3.05. That is up nearly 45 cents from a year ago. Diesel prices also have risen, reaching $3.29 a gallon, more than 56 cents a gallon higher than last year.
Alec Gutierrez, lead analyst for vehicle evaluation at Kelley Blue Book, said sales of SUVs have only fallen about 1 percent since the last major gasoline price spike in spring of 2008.
He said he doesn't expect SUV sales to drop dramatically unless prices reach $3.50 to $4 per gallon, but even then, the rush to offload larger vehicles shouldn't be as pronounced as in spring of 2008.
“If you see a 20-to-30 cent price increase per gallon over the course of a couple weeks then of course people are going to panic,” he said, “but if it increases steadily over time that gives the market a chance to react rationally.”
Changing habits?
But even though consumers may know what to expect this time, that's not to say they won't change their buying habits.
“The Ford Escape, the Nissan Rogue, the Honda CR-V and the Toyota RAV4 -- the compact crossover segment -- that's where we'll see a lot of growth in terms of production and sales overall,” Gutierrez said. “The American consumer still generally wants to have a vehicle that offers a lot of utility but at the same time they are conscious of the fuel economy that the vehicle offers and what they are going to pay at the end of the month.”
As people are watching their budgets, so too are dealers, who may not want to buy back SUVs if those vehicles will be worth less at auto auctions, Gutierrez said.
“The days where a dealer could just go to auction and stock up on a bunch of SUVs and hold them for 40 or 60 days are over.”
For dealers, caution is key when stocking inventories.
“Our small SUVs are doing OK but the large SUVs and large trucks have definitely cooled off since the pickup in gas prices,” said Jason Stewart, general manager of Earl Stewart Toyota of North Palm Beach in Florida.
At the same time, Stewart said, Prius sales have tripled -- a reversal of the sales situation when gasoline prices crashed later in 2008.
Two years ago, “when gas was in the low-to-mid twos, we did a 180 the other way where Prius sales fell off the mark and we were selling more of the Sequoias and Tundras,” he said. “My gut is it ties right into people's pocketbooks.”
Plummeting trade-ins
Stewart said the last time gasoline prices reached this high, trade-in values of SUVs plummeted. Although he said SUVs are not that popular to begin with in the North Palm Beach area, the dealership plans to scale back even further on the number available for sale in anticipation of the gasoline crunch.
Dennis Egglefield, owner of Egglefield Ford in Elizabethtown, N.Y., said SUV sales dropped by half during 2008's gasoline price spike, but have since leveled out. Unlike Stewart's dealership, Egglefield Ford is in the Adirondack Mountains about 100 miles south of Montreal -- a region where four-wheel drive is desirable.
Egglefield said, though, that he has noticed more people choosing the Escape over the larger Explorer or Expedition.
“SUVs are still important in this area, but people are downsizing to more fuel efficient SUVs instead,” he said.
As gasoline prices rise “we are still stocking with the idea that it may go either way,” Egglefield said. “Hoping for the best, but prepared for anything."
Small crossover vehicles like the Nissan Rogue, pictured, could be the biggest beneficiary of higher gasoline prices.
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