GAS PRICES

Are Cars Doomed? Not So Fast!

July 28, 2017 by admin 1 Comment

Consumer sentiment for high-profile vehicles continues.

2015 Hyundai Azera — This large Hyundai Azera sedan won’t see the 2018 model year.

A quick scan of the automotive landscape, especially in the United States, reveals that consumers are snapping up SUVs and pickup trucks to the detriment of coupes, sedans, and wagons. Some brands, such as Buick, are selling as many as three SUVs to one car, underscoring the wholesale shift away from traditional transportation choices.

Some analysts see a permanent shift away from cars to high-profile vehicles and are essentially calling the segment dead. Indeed, just this past week we’ve heard rumors that GM may cancel two large sedans — the Chevrolet Impala and Cadillac XTS, with even a few smaller models such as the Chevrolet Sonic possibly on the chopping block. Also, it is unlikely we’ll see a new Ford Taurus and similar rumors that next-generation Fiesta won’t arrive stateside continues. Further, Fiat Chrysler has already canceled the midsize Chrysler 200 and compact Dodge Dart sedans, while Hyundai has similar plans for the large Azera sedan.

2017 GMC Canyon Denali — Small pickup trucks such as this
GMC Canyon are fueling demand.

Are cars doomed? Or are we seeing a temporary shift that may someday swing back or at least strike a balance between cars and utility vehicles/trucks? Here’s how I see things shaping up over the next several years:

1. Several car models will go away. It seems likely most of the previously mentioned models will, indeed, go away. Some have questioned the Taurus’ demise, given that it is used by police departments across the country. On closer inspection, other Ford models such as the Explorer are in greater demand, taking sales from the Taurus. Moreover, this past April, Ford announced it was bringing the Ford Police Responder Hybrid Sedan to the market, based on the Fusion Hybrid. It’ll be used mostly in urban settings, but it should fill the void once Taurus production ends.

2. A shrinking pie, with fewer players. Not every automaker is abandoning shrinking segments, at least not yet. The large sedan segment has seen the most significant pullback of any, with sales falling by more than one half over the past five years. Toyota is planning to bring the next generation of its large Avalon to the market next year, even as Hyundai, Chevrolet, and Ford abandon the market. This makes sense because the 2019 Avalon is based on the same platform underpinning the Toyota Camry and also shares its wheelbase with the Lexus ES Series. Avalon sales may be falling, but Toyota is poised to fill the void left with its own model. Livery owners everywhere rejoice!

Ford Fiesta ST — Rumors of the Ford Fiesta’s demise may be exaggerated.

3. Shrinking, but not dying. Not all car segments are going away. One reason large sedan sales are falling is because midsize sedans are taking up the slack. Today’s midsize models are nearly as large as the big sedans sold 15 years ago. They’re also better made, well equipped, and affordable. Doubtlessly, the D-segment pie will continue to shrink, but there is an opportunity for those who are patient. Indeed, both the Toyota Camry and Honda Accord are all new for 2018, while a refreshed Hyundai Sonata rolls out. Sales of such remaining models as the Ford Fusion, Nissan Altima, Chevrolet Malibu, and Kia Optima remain strong. It is doubtful the Subaru Legacy will go away, although models such as the Mazda 6 and Volkswagen Passat may not receive an update anytime soon.

2016 Honda HR-V — Small SUVs such as this Honda HR-V
are siphoning sales from cars.

4. Gas prices are a driving factor. Low fuel prices have people running away from fuel-efficient models. That said, today’s utility vehicles are more efficient than ever. Still, if gas prices begin to rise, consumers may suddenly shift demand to vehicles currently in low demand. No utility vehicle delivers anywhere near the 40 mpg of a Ford Fiesta or even a Toyota Camry. Prius sales may be down, but when gas prices top $4 per gallon in some places, demand could suddenly rise. Fuel demand worldwide has eased over the past few years, but war or some sort of environmental calamity (e.g. earthquake, oil spill, meteor impact) could quickly shift demand. Those automakers with the right mix of models in place will be the winners here.

5. Consumer tastes change and without reason. Who can figure out the mind of the consumer? Focus groups, surveys, and polls may capture consumer sentiment at the moment, but they aren’t always accurate and can never gauge whims. Cars carry a certain mystique SUVs cannot match and remain the favorite of enthusiasts and collectors alike. Not so with SUVs.

2015 Chrysler 300 — The fate of such models as this Chrysler 300 is unknown.

Tapping the Market

Cars are not doomed, but some models are on life support. Certainly, SUVs are more profitable, so manufacturers go where the money easily flows. Manufacturers who hedge their bets are able to quickly pivot, especially when consumer sentiment changes — sometimes on a whim.

Stabilizing Fuel Prices: Good News in Advance of Summer

May 12, 2016 by admin Leave a Comment

Motorists can expect lower fuel costs this summer driving season.

Ford Transit

Drivers should face less costly fill ups at gas pumps this summer.

Fuel prices may finally have begun to stabilize after reaching the highest prices we have seen in six months earlier in May. Refineries have increased production to meet record-high demand and that effort has forced gas prices down earlier this week by one penny to a national average of $2.21 a gallon according to AAA.

The price stabilization is welcome news for consumers as Memorial Day weekend arrives in two weeks, signaling the unofficial start to summer. At $2.21 per gallon, fuel prices have risen by 17 cents in May alone, but the average remains 45 cents cheaper than this time last year.

Record Gas Stock

According to the United States Energy Information Agency, gasoline stock is at the highest level since the start of May, setting a record. AAA expects drivers to take to the road this summer at levels not seen since 2007, the last year before the onset of the Great Recession. As long as supply keeps up with demand, fuel prices should remain relatively stable throughout the summer months. This is good news for consumers and should benefit the economy, especially the hospitality industry.

As always, fuel prices vary across the country with California ($2.80) currently with the highest averages followed by Hawaii ($2.64), Washington ($2.49), Nevada ($2.48), and Alaska ($2.46). Fuel prices are now above $2 per gallon in most locations, although Oklahoma ($1.95), Kansas and Missouri ($1.98), and Texas and Arkansas ($2.00) are currently at or below that threshold.

Regional Differences in Fuel Prices

Although historically coming in much higher than the rest of the nation, the western states have seen some of the largest year-over-year drops in fuel prices. California drivers currently are saving 91 cents per gallon to 73 cents for Nevada. Alaska drivers are saving 69 cents at the pump on average to 60 cents in Oregon. Meanwhile, Hawaii drivers are paying 59 cents per gallon less, while Arizona drivers are enjoying a reprieve of 55 cents per gallon on average.

Increasing demand on the west coast may put pressure on prices moving forward, but relief is on the way. Indeed, AAA says ExxonMobil’s Torrance, California, refinery should come back on line later this month once it restarts its fluid catalytic cracker and related gasoline production units.

Other regions are benefitting in various ways too. The Gulf Coast continues to enjoy the lowest fuel prices in the nation as the area benefits from a greater concentration of refineries. In the Midwest, prices are more volatile as the region deals with the twin challenges of increasing demand and heavy refinery maintenance.

On the East Coast, refineries coming back online have helped keep up with demand, although some of the highest costs in the nation are found in that area with Pennsylvania averaging $2.40 per gallon to $2.38 per gallon for New York.

Get Road Ready

As always, prepare your car for the road ahead, especially for those long trips that will take you far from home.

Pull out your maintenance schedule, taking care of all due items before you leave. Even if something isn’t due for another 1,000 or 2,000 miles — such as tire rotation — get this done now. The last thing you want is an incident or accident resulting from neglected maintenance.

If you belong to a roadside assistance club, verify that your information is current. Carry with you your card, download an app, and check that your account is active. Lastly, go through your emergency kit to ensure jumper cables are present, as well as all tools, a working flashlight with extra batteries, flares, cloth, and other items. You can build a kit yourself or buy one preassembled.

Painless at the Pump: Falling Gas Prices Thrill Consumers

January 21, 2016 by admin 1 Comment

Much lower fuel prices means “pain at the pump” is now a thing of the past. How low will gas prices go? Will prices stay low for the foreseeable future?

2015 Ford Expedition. — SUVs such as this Ford Expedition are increasingly cheaper to refuel.

Gas prices are tumbling and in some areas of the country are the lowest we’ve seen this century. As of this writing, the average price of a gallon of regular gasoline sits at $1.861, according to Gas Buddy, the fuel price tracking website.

Driving the lower prices has everything to do with supply and demand. Domestic production has nearly doubled over the past few years and countries such as Canada and Iraq are producing more oil year after year. And despite feeling the squeeze from the west, Russia continues to pump oil. Thus, with the US essentially not needing much fuel from abroad, its former suppliers are looking for new markets. Those markets aren’t as lucrative as North America and Europe, therefore prices have fallen accordingly.

A Price War in Michigan

The new, lower prices are still above the $1.592 average reached on December 29, 2008. However, prices in some areas of the country are much lower as gas price wars have erupted. Notably, one station in northern Michigan dropped its price to 47 cents per gallon for regular gasoline earlier this week. Prices around Houghton Lake later rebounded, but one station is still charging $1.30 per gallon this morning.

Today’s fuel prices are part of a downward trend that began about 18 months ago when prices were averaging $3.58 per gallon. The international price for crude oil, once above $100 per barrel, is now below $30 per barrel and is expected to continue to fall. As a matter of fact, Iran is expected to produce upwards of 500,000 barrels of oil daily as economic sanctions against the Islamic Republic have been lifted. As long as supply outstrips demand, lower prices at the pump should continue.

Toyota Camry Hybrid. — Demand for electrified vehicles such as this Toyota Camry Hybrid continues to fall.

Consumers are, of course, elated with the lower prices. Refueling a large SUV once cost more than $125, a painful price point that had people avoiding models such as the Chevrolet Suburban and the Ford Expedition. That same Suburban with a 31-gallon fuel tank might now set the owner back by approximately $50 with the tank nearly empty.

Greater Demand for SUVs

Falling fuel prices continue to spark greater interest in pickup trucks and sport utility vehicles. In 2015, US consumers purchased 17,470,499 new vehicles, setting an all-time record. Of that number, 9,729,587 were classified as light trucks, leaving 7,740,912 passenger cars, according to Motor Intelligence by Autodata Corp. Thus, 55.69 percent of all new consumer vehicles purchased last year were either SUVs or pickup trucks.

A scan of fuel prices across the nation this morning reveals sharply divergent prices and those prices are not always dependent on the region. Oklahoma currently holds the distinction of offering the lowest gas prices, averaging $1.539 across the Sooner State. Prices are averaging even lower in the northeast corner of the state, reaching $1.392 per gallon this morning.

On the other end of the pricing spectrum is California with prices averaging $2.72 per gallon or about a dime higher than the second most expensive state, Hawaii. For the most part, prices in the Golden State are tracking below $3 per gallon, although motorists in Mono County are still paying $3.502 per gallon on average. If you live in Yuba County, you’re saving more than a dollar per gallon as average prices there are coming in at $2.335 per gallon.

>Pickups, such as this GMC Sierra 2500 Denali are in great demand.

Looking Ahead

Fuel prices are not likely to rebound in the immediate future. Even as oil production is lowered, demand remains flat in many countries. As long as oil production outstrips consumption, we’ll see lower prices maintained. That also means consumers will continue to gravitate to larger and heavier vehicles with sedans and especially electric vehicles left in the dust.

See Also — Production Reality: 2018 Lexus LC 500

Experian Automotive: Gas Buyer Trends

February 8, 2013 by admin 2 Comments

We are already seeing gas prices this year begin an ascendancy that tends to peak sometime in the summer. Gas prices clearly impact consumers, especially people shopping for new passenger vehicles. What is not always clear is how that shift affects the auto industry, specifically which vehicle segments will see an increase in sales and which ones will lose market share and by how much.

Experian Automotive Survey

gas sign Experian Automotive has released the findings from a study it recently conducted on the impact of rising fuel prices. The company evaluated vehicle segment trends over a five-year period, finding that there is a direct correlation between fuel price fluctuations and new vehicle sales.

As expected, sales of full-size trucks routinely drop while sales of small cars rise as gas prices surge. Specifically, Experian noted that for every price increase of a $1 or more, sales of full size trucks dropped by 0.5 percent while sales of small cars rose by 0.7 percent. Notably, Experian found that sales of hybrid pickup trucks such as the Chevrolet Silverado actually fell by 0.1 percent. Hybrid vehicles and electric vehicles, supposedly the biggest beneficiaries of higher fuel prices, saw gains of just 0.2 and 0.1 percent respectively.

Consumer Auto Trends

Experian Automotive then took the changes and tracked them across vehicle segments to gauge that impact on new car dealers. It found that the number of vehicles bought remained unchanged, but consumers shifted to other categories in search of vehicles offering improved fuel savings and good value. With 18,000 new vehicle dealers in the country, higher gas prices could shift sales to smaller vehicles, with sales increasing by an average of one unit every three months. That may seem like a small impact, but it does have broader consequences on dealer inventories that are planned months in advance.

Said Erik Hjermstad, lead analytic consultant for Experian Automotive, Smaller cars definitely pick up market share, and full-size pickup trucks and SUVs definitely see a downturn. But, the magnitude of these shifts is also a function of how quickly gas prices increase or decrease.”

Rising Fuel Prices

Regionally, prices changes can be sharper in some areas of the country, perhaps having an even greater impact on local new car dealers. Those dealers that carefully monitor pricing trends, follow changes in consumer demand and align their inventories accordingly are in a better position to react to fuel price changes noted Hjermstad. As of publication, gas prices have already pushed above $4 per gallon in California, with some stations charging more than $5 per gallon reports the San Jose Mercury News. Likely, impacted dealers are already seeing a shift in consumer demand playing out locally.