Biggest automobile market – change in consumer attitudes

For years, auto and energy industry watchers wondered how high the price of gas would have to climb before consumers in the US – still the world’s biggest automobile market would change their driving habits. Now they know. As the price neared and passed $4 per American motorists cut back on their driving and started to shun the fuel hungry small trucks and sport utility vehicles that had been profit centers for auto manufacturers in the US. Many even switched to mass transit, the poor step child of America’s transportation mix since the 1950s.
The change in consumer attitudes about fuel efficiency has been so swift and widespread that the American vehicle manufacturers have found themselves once again behind the curve relative to their Asian and European competitors, just as they did following the oil embargo of 1973. But after the 1973 embargo and an oil price spike in the 1970s and early 1980s, the price of gasoline in the US declined. Almost immediately, US automakers began introducing big minivans, powerful new SUVs and luxurious pickup trucks. Consumers loved them, and small cars were displaced from the top of the US sales charts.

The changes this time are more likely to stick. It certainly feels and looks like that right now a key variant in the auto industry of 2008 versus the 1970s and 1980s. What is different now is that there are these alternative technologies such as hybrids and fuel cells; some are in the marketplace, some are rushing to market and others are in the pipeline. In the 1980s, there weren’t really any brand new technologies that promised significant or permanent reductions in fuel consumption. The only option was mainly just to build a smaller product.

Making the situation even worse for automakers is that the high price of oil is driving up other costs for energy to run its plants and distribute its products, and for raw materials. The cost of steel has doubled since the beginning of the year.
Smaller cars are also part of the industry’s response this time. Autos such as Daimler-Benz’s Smart Car, Honda’s Fit and GM’s Aveo all comparatively tiny vehicles of the sort once popular only in Europe and Asia, where gas prices have long been higher than in the US are now entering the US. GM announced that it hopes to introduce a mini car called Beat, which has been successful overseas, to the US by 2012. But automakers in the US and in Europe and Asia are also rushing to expand their offerings of hybrid engines, which employ an electric motor to work in tandem with a traditional internal combustion engine to provide a boost in gas mileage. The electric motor is powered by batteries that are recharged by the petroleum powered engine when the vehicle is cruising at high speed, or when the vehicle brakes or coasts. Some manufacturers, including Ford, GM and Toyota, have said they aim to start selling “plug-in” hybrids in which the electric motor can take on more of the work because of more powerful batteries that can be recharged between trips by plugging them into a standard wall outlet.
Consumer demand and the manufacturers’ scramble to serve it can be seen in the sales numbers. Auto sales in the US fell 18% year-to-year in June, mostly due to sparse sales of once popular light trucks, which include pickup trucks and SUVs. Those light trucks represented 55% of all US vehicle sales in 2005. In the first half of 2008, their share was down to 47%. General Motors announced it would close four truck and SUV plants and roll out more fuel-efficient vehicles.