American Demand for Big Cars Stable Despite Increasing Gasoline Prices

John Birchard
Voice of America
May 25, 2004

Audio Version - 450KB - RealPlayer

American motorists are complaining bitterly as the price of gasoline rises into record territory.  The squeeze on drivers' pocketbooks has not yet caused any serious dent in the sales of sport utility vehicles (SUVs) and pickup trucks.

The cost of a U.S. gallon of regular unleaded gasoline has surged well past the $2 mark and shows no sign of retreating anytime soon.  For Americans accustomed to cheap gas, that price produces pain at the pump.

But, so far, the pain has not caused a change in buying habits, according to George Pipas, sales analysis manager at Ford Motor Company.

"The U.S. auto sales picture is up three percent compared with a year ago," he said.  "But full-size pickups are up ten percent, for example, and sales of sport utility vehicles are up 11 percent with growth in every category, from small to large."  Mr. Pipas says there's some evidence of the beginnings of a shift on the part of consumers.

"Anecdotally, we know there are some consumers who have down-sized their vehicle purchases, but it doesn't appear to be on any large scale," he said.

One automaker that might benefit from such a change is Toyota, maker of the world's first hybrid.  Hybrids feature a gasoline engine combined with an electric motor to increase fuel economy while reducing pollution.  The Toyota Prius says Ernest Bastien, vice president of the company's vehicle operations group, is already a hot seller.

"Right now, we have 22,000 people waiting for delivery, and we finished last month with a small, 1.4 day supply," said Mr. Bastien.

But Mr. Bastien is careful to note that the price of gasoline may not be the only motivator, saying the increase in Prius sales over last year by 78 percent began before the spike in gas prices.  We asked the Toyota executive whether consumer interest extends to new hybrid models the company will introduce.

"We unveiled the Highlander [SUV] hybrid at the Detroit Auto Show in January," he said.  "And since that time, we've had over 50,000 people send us their names and addresses over the Internet, asking for more information.  We haven't announced prices yet, so there's no actual, firm orders out there, but I understand consumers have communicated with our dealers that they would like to buy the first one that arrives."

Ford will unveil its Escape Hybrid SUV later this year and George Pipas says if the price of gasoline stays high, or goes higher, that may boost the new Ford's success.

"I think it will provide a better gauge for what the appetite is for this kind of vehicle," he explained.

However, the Ford sales analysis manager believes a little history lesson is in order.

"In the 1980s, when fuel prices rose rapidly, we did see a change in buying behavior, people migrating toward smaller vehicles," he reminded.

George Pipas points out that there is a fundamental difference between the period in the 1980s and the current situation in America.

"That rise in fuel prices was also associated with a very weak economy, very high interest rates," recalled Mr. Pipas.  "The prime rate was 18 percent twenty years ago.  Unemployment was double-digit, about 11 percent compared with something closer to 5 percent today."

Americans in those days felt squeezed from every direction and that translated into strong sales for small cars.  So, the question remains: how high must the price of gasoline go and how long must it remain at record levels before the American consumer begins the big shift to smaller, more fuel-efficient vehicles? When will the trickle turn into a flood?