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Smaller cars gain ground as gas prices climb { May 20 2004 } Original Source Link: (May no longer be active)
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Smaller cars gain ground
Heavyweights lose as gas prices keep climbing
Smart car in Paris
By Greg Schneider
Updated: 12:49 a.m. ET May 20, 2004
Ever since gas prices started spiking last month, customers have been flocking to one side of Lustine Toyota/Dodge in Woodbridge and ignoring the other.
"The Dodge truck business is way down," General Manager Jim Giddings said, because of what he called "this gas thing." He's on track to sell just 36 Dodge trucks this month, compared with 68 during the same month last year.
Toyota sales, on the other hand, are up 38 percent so far in May. One of the big drivers is the Prius, the gas-electric hybrid that has become a phenomenon in the past year, with Giddings holding a waiting list of more than 50 customers.
As average gas prices have topped $2 a gallon this month for the first time, cracks are emerging in America's decade-long obsession with bigger and bigger vehicles. Drivers are starting to think about the cost of cruising in two tons of steel, and some are turning to a new crop of innovative -- and more economical -- smaller cars.
• More coverage: Auto industry
Sales of truck-based SUVs fell in April, and sales of small cars went up. Automakers rushed to the aid of SUVs, which is where they earn most of their profit, lowering base prices and offering more incentives than on any other type of vehicle. At the same time, they raised prices on small cars.
"Gas prices seem to be the most likely reason why. . . . As long as they stay around where they are or higher, there is going to be some shifting of the market," said Jesse Toprak, director of pricing and market analysis for Edmunds.com. That's bad news for domestic automakers, who are "especially vulnerable because they make most of their profits from large SUVs and large trucks, and if demand softens, it's going to hurt their bottom lines for sure," he said.
No one is pronouncing the death of the SUV, and car companies insist they are not worried about long-term fallout from higher gas prices. "I think folks have their blinders on when they are just looking at gas prices because the much more important factor . . . is the overall economic environment," said George Pipas, U.S. sales analyst for Ford Motor Co. Inflation, interest rates and unemployment are so low, he said, that "we don't expect to see a substantial shift in sales mix" despite the bigger bite at the fuel pump.
But something is happening, even within the SUV segment. The consumer hunger once focused on big, truck-based SUVs has shifted to smaller, more fuel-efficient "crossover" utility vehicles, which are based on car frames. Crossovers such as the Nissan Murano and Chrysler Pacifica have spurred the segment to four straight years of double-digit sales growth.
"We think that this fuel-efficient segment of the SUV category will have sales growth of at least 30 percent" over the coming year, Paul Taylor, chief economist for the National Association of Automobile Dealers, wrote in a recent analysis. Large-SUV sales, meanwhile, are expected to stay flat or even decline.
Hybrid SUV
In keeping with that trend, Ford has seen far more interest than expected in its new Escape gas-electric hybrid, a small SUV that will go on sale late this summer. While Ford plans to build only 20,000 Escape hybrids per year, more than 34,000 people have already signed up for an e-mail newsletter about the truck, which is expected to get 35 to 40 miles per gallon in city driving, a marked improvement over the 20 mpg of the conventional Escape.
"We definitely expect demand to exceed supply," Ford spokeswoman Angela Coletti said. Since last week, Ford's Escape hybrid Web site has seen traffic jump 140 percent -- partly because of a round of stories in the media, she said, and partly because of concern about rising gas prices.
Similarly, Toyota Motor Corp. has gotten some unexpected results with its new Scion brand, which rolled out nationwide this spring. Aimed at the very hip and very young -- some marketing targeted 9-year-olds -- Scion has connected instead with middle-aged commuters who like its low price and 30-plus-mpg fuel economy. The typical buyer of the Scion xA, a small hatchback, has been a 37-year-old male with a $60,000 salary, according to company figures.
The emergence of such new products could help sustain the trend sparked by higher gas prices. Drivers are not only facing pressure at the pump, for the first time in years they're also being drawn to fuel-efficient products that have either a technological twist, such as hybrids, or a powerful "cute" factor.
The path blazed by Volkswagen's New Beetle has been carried further by BMW AG's Mini Cooper, which last month offered the least in discounts or incentives -- none -- of any type of vehicle on the market, according to Edmunds.com. Car makers have more such offerings on the way, from the "smart" -- a European micro-car that DaimlerChrysler AG's Mercedes Car Group plans to debut in the United States in 2006 -- to concepts from Chrysler Group and General Motors Corp. that should roll out in the next couple of years.
Chrysler's proposed Dodge Slingshot looks like a sporty roadster but features a gas-sipping 3-cylinder engine. The combination of fun and economy is the key to the concept, Chrysler chief executive Dieter Zetsche said in an interview. As long as gas prices increase slowly and steadily, he said, buyers will continue to be motivated more by style than by practical concerns about the cost of filling the tank.
Hit in Europe
"The only reason we can employ 100,000 people in the U.S. is because we're selling dreams and emotion, not just steel and rubber," he said.
One car aimed squarely at both hearts and purse strings is the smart, which has been a huge hit in Europe since being introduced in 1998. Engineered by Mercedes with design help from The Swatch Group Ltd., the stylish Swiss watch-making company, smarts look like something from the world of Teletubbies. Two feet shorter than a Mini Cooper, the smart is so tiny that four can fit in an ordinary parking space. Many motorcycles have bigger engines; the smart's radiator is about the size of a school lunchbox. More importantly, a smart gets about 60 miles per gallon on the highway.
The run up in gas prices has created an explosion of interest in the smart in the United States. "The response has been absolutely overwhelming -- e-mail from consumers, request lines set up by advocate groups, fanatic or fan Web sites -- we've really been overwhelmed by it," said Scott Keogh, general manager of Smart USA.
Nonetheless, DaimlerChrysler has no plans to hurry the 2006 U.S. rollout because it wants to set up a network of dealers and service centers. "We're preparing the marketplace, speaking to our dealers. . . . 2006 is going to come extremely quickly," Keogh said.
In the meantime, two small import companies have won approval from the federal government to begin importing smarts and converting them for use on American roadways. J.K. Technologies LLC in Baltimore expects to have 400 on the way to U.S. customers by September. G&K Automotive Conversion of California has far grander plans, forming a partnership with ZAP, an alternative vehicle distributor, to market up to 15,000 smarts nationwide by 2005.
J.K. Technologies President Jonathan Weisheit said his first batch of 20 little cars, which he'll sell for about $20,000 apiece, is already being shipped across the Atlantic, and he couldn't be happier with the timing. The higher gas prices climb, the more people call him to get on the smart car waiting list.
"I'm not worried about gas prices," Weisheit said. "I'm going to be driving a smart."
© 2004 The Washington Post Company
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