Gas Prices Not Having Big Effect On Sales Of SUVs

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With the price of gasoline remaining stubbornly high across the United States-especially in California- might credit unions expect a shift in the kinds of vehicles consumers purchase and finance?

But according to one expert, Americans do not seem ready to abandon their gas-guzzling sport utility vehicles anytime soon.

Paul Taylor, chief economist for the National Automobile Dealers Association, reported that June was a "lackluster" month for light vehicle sales for several reasons, but gas prices were not a major factor.

One key element was the calendar: June 30 was a Wednesday, meaning the Independence Day holiday-traditionally a big weekend for auto sales-fell entirely in July. In addition, General Motors ended its "Truckfest" incentive program May 31, job creation numbers in June were below expectations, and consumer durable goods orders for the month were soft.

Add these factors together and the light vehicles daily sales rate for June was down 6% compared to June 2003. However, year-to-date sales (Jan. 1 through June 30) are up 2.2%.

"When you start looking for a clear pattern, the large, truck-based SUVs are essentially flat in 2003, while the mid-sized or cross-over SUVs are exhibiting strong growth," said Taylor. "However, the strong growth by the cross-over vehicles has occurred for three years."

There is not much difference in the relative mix of vehicles being sold, he continued. "Where people make adjustments for the price of gasoline is in the drive train choice. That's why hybrids [vehicles that run on a combination of gasoline and electric power] are popular, as are diesel engines."

Taylor said consumers who commute long distances, and therefore can more quickly offset the cost of a hybrid vehicle that might be $3,000 to $3,500 more than a gasoline-powered model, are those more likely to make a choice driven by gas prices.

However, he added: "There is no evidence for the substitution of small cars or trucks for larger ones in the June or year-to-date data."

Gas Prices Expected to Decline

On July 6, the U.S. Energy Department reported the average national price for one gallon of regular grade unleaded gasoline was $1.89, or about 47 cents per gallon more than a year ago. The state with the highest average price was California at $2.20 per gallon. The least expensive gasoline is in the Gulf Coast region, with an average of $1.78.

"The important thing to remember is a lack of refining capacity is a key factor in the high price of gasoline," said Taylor. "That generally goes away by the end of the summer driving season. The NADA expects an average price of $1.65 per gallon for regular gas on the East Coast by November."

Another item of interest for CUs is the NADA's outlook on incentives. Taylor said automobile manufacturers likely will focus on cash incentives rather than zero percent financing in 2005.

Because interest rates are rising, the cost of cash incentives is easier to forecast, he explained.

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