Gasoline price rises give automakers whiplash

With U.S. gasoline prices poised to revisit the $4-plus per gallon peak hit in 2008 just before the recession, sales of new smaller cars introduced since then would seem assured.

But as analysts and executives said at the Detroit auto show this week, the only sure thing is that today's forecasts are wrong -- it is anyone's guess by how much.

The wild fluctuations in the price of gasoline and of the materials that make up the thousands of car components such as steel, aluminum, copper and platinum can wipe out years of design and manufacturing planning within days.

In the summer of 2008, demand for small cars such as the Toyota Corolla, Honda Civic and Ford Focus far outstripped the immediate inventory as gasoline prices shot higher.

However, a quick pullback in gas prices as the deepest economic downturn since the 1930s took hold left newly built small cars to languish on dealer lots.

"We do believe at Ford that the price of gasoline is going to march upward over time," Ford Motor Co. Executive Chairman Bill Ford said on the sidelines of the Detroit auto show. "And we've built our whole entire strategy around that."

The rise in gasoline prices has been slower thus far than in 2008 -- when it jumped 32 percent from January to $4.11 per gallon in July, then fell back to $1.65 by year end.

The average price of U.S. gasoline is more than 25 percent below where it was then. Still, executives say they are already seeing a switch to smaller vehicles.

"We're seeing consumers quickly shift back to a higher mix of fuel-efficient cars and now trucks are actually starting to slow down," said Bob Carter, U.S. market brand chief for Toyota Motor Co. "Sixty days ago, we found the opposite happening."

Some in the industry predict a booming market for smaller vehicles, while others point out that the surge during the last gas price spike evaporated as soon as prices started to slide.

Others still warn that the higher cost of key commodities, primarily rare earths and metals, will be passed on to consumers at a time when the industry is just starting to work its way back from the slump that forced General Motors Co. and Chrysler into government-led bankruptcy in 2009.

"The costs will be higher," said Matthias Mueller, CEO of German luxury automaker Porsche. "But at the end of the day, all of our competitors face the same problem as us."

Summer of discontent

If anything could sum up the challenges of selling smaller cars in the U.S. market, it would be the gas spike of 2008. Many Americans abandoned a long-standing love affair with gas-guzzling SUVs and trucks to buy cars as oil made its historic run to $145 per barrel. It is around $92 a barrel now.

Now there are signs that consumers are downsizing again with gasoline at a national average of $3.09 as of Jan. 11, according to the U.S. Energy Information Agency.
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