Higher fuel costs raise doubts for SUVs

[BMWDave]

Higher fuel costs raise doubts for SUVs; GM unconcerned as it readies next-gen models
JASON STEIN | Automotive News
Posted Date: 9/6/05
DETROIT -- Fill 'er up? Maybe not.

In some U.S. cities last week, regular unleaded gasoline was selling for $3.49 a gallon. That means filling a three-quarter-ton Chevrolet Suburban's 37.5-gallon tank cost a wallet-whopping $130.88, or $62 more than in January.

Hurricane Katrina's short-term impact on fuel prices highlighted a worst-case scenario for Detroit's automakers: As gasoline prices rise, the product mix could shift away from big SUVs - and profits could shift with it.

The timing is bad for General Motors, which is preparing to launch its next generation of full-sized SUVs next year. GM's pretax profit on its full-sized SUVs nearly equaled its overall net income in 2004, one Wall Street analyst says.

Even before Katrina pushed gasoline prices past $3, fuel costs were rising. And large SUV sales in the United States were taking a beating.

Through the first five months of the year - before employee pricing incentives cleared out 2005 inventories - GM's SUV sales were down 19.7 percent, compared with the same period a year earlier.

Changing mix

GM's large nonluxury SUV sales - the Chevrolet Suburban and Tahoe as well as GMC Yukon and Yukon XL - were off 27.2 percent.

Gasoline prices weren't the sole cause for the decrease. GM's full-sized SUVs are losing sales appeal in their last year before the arrival of restyled, re-engineered versions. And gasoline prices haven't hurt pickups. With the help of sizable incentives, sales of full-sized pickups built on the same architecture, GMT800, rose in the first five months of this year.

What segments benefited? Small cars and more fuel-efficient vehicles such as the Chevrolet Equinox sport wagon and Colorado pickup.

Even the Japanese automakers were not immune to the changes.

Through eight months this year, U.S. sales of the large Toyota Sequoia SUV were down 15.3 percent from the same period a year earlier. But sales of the Prius hybrid car rose a staggering 132.0 percent, from 31,406 units to 72,849 units.

Shane Sanders, Internet sales manager at Antwerpen Toyota in Clarksville, Md., says demand for the Prius and hybrid version of the Highlander mid-sized sport wagon started to rise the third week of July. Last week he sold five Highlander hybrids.

"It's absolutely hit the roof," Sanders says.

GM delayed some mid-sized car programs in order to speed the launch of its full-sized SUV and pickup programs, code-named GMT900.

When GM redesigned its GMT800 architecture six years ago, the automaker watched profits roll in as the U.S. full-sized truck segment mushroomed from 3 million to 3.5 million units annually.

Deutsche Bank analyst Rod Lache estimates GM earned at least $5 billion in pretax profit from its GMT800 architecture last year. That included $2 billion from large pickups and $3 billion from SUVs. Total corporate net income for 2004 was $3.69 billion.

Last summer, Paul Ballew, GM's executive director of global market and industry analysis, said that if gasoline prices topped $2.50 a gallon, it could affect the mix in the long run. He said GM's research showed that gasoline prices must rise to $2.50 to $3 a gallon for a sustained period to change vehicle-buying decisions.

A change in tone

As gasoline spiked above $3 a gallon last week across the country, Ballew said GM doesn't see sales of full-sized SUVs returning to "peak levels." But he's unconcerned about the launch of GM's SUVs next year. "We're not anticipating it will be at $3," he said. "But anytime we're in the $3 a gallon range, it gets our attention."

In a research note last week, Himanshu Patel, an auto analyst at JPMorgan Chase & Co. in New York, expects "roughly a 15 percent reduction" in volume levels on the GMT900. Last year GM sold roughly 1.52 million large pickups and SUVs.

GM is not alone. With a redesigned Explorer SUV coming this fall, Steve Lyons, Ford Motor Co. group vice president for North America marketing, sales and service, said gasoline prices are an immediate concern.

The solution? "We'll learn how to make more money on cars," Lyons said. "We have to."

Amy Wilson, Mary Connelly and Greg Migliore contributed to this report

[Speed_Racer]

Wow...how come everyone but GM saw this gas increase eventually coming? Analysts have been saying that we would hit $3/gal for a quite a while.

I've heard of a surprising amount of people w/ large trucks looking to buy something "smaller."

[thewizard16]

Wow...how come everyone but GM saw this gas increase eventually coming? Analysts have been saying that we would hit $3/gal for a quite a while.

I've heard of a surprising amount of people w/ large trucks looking to buy something "smaller."

Well, if you're the "average" american driving 12,000 miles a year, and your truck gets 15 mpg, then you're paying $2400 a year for 800 gallons of gas. If you switch to something that gets a little better, say 18mpg, then you're paying $2000 a year for 667 gallons of gas. So if you drive something that gets just a little better gas mileage, then you save $400 a year (assuming gas prices were at $3, and stayed there forever)... if you switch from a big vehicle to a much smaller one, you could save a ton.

[Secret Chimp]

/me waits for better diesel quality in a few years and the flood of Euro models/engines to follow.

[Raza]

I'm going to soldier on.

[MX793]

/me waits for better diesel quality in a few years and the flood of Euro models/engines to follow.

Even with new diesel fuel, it's my understanding that upcoming Tier 2 US emissions regulations will make new diesel passenger vehicles unattainable in the US.

[TBR]

Various companies have plans to bring diesel cars to the market in the next few years, including Honda, so it must be possible for diesels to meet the new emissions standards

[93JC]

Well, if you're the "average" american driving 12,000 miles a year, and your truck gets 15 mpg, then you're paying $2400 a year for 800 gallons of gas. If you switch to something that gets a little better, say 18mpg, then you're paying $2000 a year for 667 gallons of gas. So if you drive something that gets just a little better gas mileage, then you save $400 a year (assuming gas prices were at $3, and stayed there forever)... if you switch from a big vehicle to a much smaller one, you could save a ton.

Yeah, but what SUV owner is going to go from Suburban to subcompact?

It ain't gonna happen guys. $3/gal gas won't make them make the switch.


If you can afford a $50,000 SUV you can afford paying a few more hundred dollars a year on gas.

[Minpin]

My dad is gonna have to sell his escalade soon   He doesnt like 12 MPG at all

[Secret Chimp]

My dad is gonna have to sell his escalade soon   He doesnt like 12 MPG at all

He could probably get a good trade on it for some bigass diesel pickup, if he still wants something unnecessarily huge ;P

[Minpin]

I think he wants a car, but BTW its the size of a yukon and about once a week for 2-3 years we had to tow our skiboat (miss ya) to the offroad ramp. So STFU about these SUV rants.....