Demand for small cars soars
Everywhere Patti Hollingshead drives these days, she draws a crowd and a query.
Pedestrians and motorists alike gawk at her new ride, a two-seater Smart Car.
And then, inevitably, they ask, "How many miles per gallon?"
Both the attention and the question are understandable -- the car's look is novel, and with gasoline bumping up against the once-unthinkable $4 a gallon, mileage is on every driver's mind.
Now at a record regional average of $3.98 a gallon -- up 88 cents from a year ago -- and showing no signs of abating, rocketing gasoline prices are not only affecting how we drive but also what we drive.
When Ms. Hollingshead ordered her new car a year ago, environmental concerns were the catalyst, but today, economics gives her a second reason. She eschews driving either her gas-guzzling Mazda Tribute SUV or her BMW, both of which get mileage in the teens, in favor of the fuel-sipping Smart Car, in which she's averaging 35 miles per gallon.
Like Mrs. Hollingshead, for reasons both economic and environmental, motorists nationwide are downsizing.
So profound is the shift that small vehicles now dwarf SUVs in desirability, driving up the purchase prices for fuel-efficient cars while driving down the trade-in allowances for trucks, large SUVs and other low mileage vehicles.
What's happening isn't unprecedented. Many Americans reacted to the embargoes and oil price shocks of the 1970s by getting into small vehicles. Then, when prices eventually dropped -- at least as a portion of disposable income -- consumers went back to big vehicles.
Clarence "Bud" Smail Jr. of Smail Auto Group in Greensburg has been in the car business for 50 years -- and that's not counting the years he spent as a kid on the grease racks for his father's dealership. He knows a buying trend when he sees it and what he's seeing now -- and has seen before -- is a very hot market for fuel-efficiency and a very soft one for gas-guzzling.
"Nationally, the small car segment is up 37 percent over the same period last April," noted Mr. Smail, who serves on the board of directors of the National Automobile Dealers Association. Cars like the Honda Fit and Toyota Yaris are among many small hot-sellers at his 72-year-old family owned business on Route 30.
By contrast, he said, the sale of trucks, larger SUVs and big cars is down about 17 percent nationally.
"They go off the lot pretty fast," he said of the fuel-efficient cars. "They're maybe around for two or three days. It's hard to keep a small car on the lot because that's what people want."
Because those small cars are so desirable, their prices have increased -- NADA estimated that in the past year wholesale prices at auto auctions have risen by 2 percent. Some car sellers place that figure even higher locally.
"If you go to a market-driven environment like an auction, more dealers want smaller cars, so prices go up. It's Economics 101," said Rob Cochran of #1 Cochran Automotive in Monroeville, where new-car hot sellers include the Hyundai Elantra, the Nissan Versa, Sentra and Rogue, and the Pontiac G6. "And when fewer people want to buy pre-owned large vehicles, price goes down."
And that means prices paid for trade-ins of large SUVs, trucks and cars have taken a nosedive.
"We're seeing a lot of people with gas-guzzlers trying to trade them in but they're not going to get much. I'm almost embarrassed to tell them what they're going to get," said Larry Antonucci, sales manager at Rohrich Toyota in Dormont, where the hot new cars include the Toyota Prius hybrid -- there's a three-month waiting list for it -- as well as the Corolla and the Yaris.
"We have a lot of cars coming in on trade -- SUVs, Jeeps, big Chevys -- that don't get really good gas mileage, and they paid $40,000 for them, and two or three years later they're worth only $12,000 to $14,000. The hit they're taking is astronomical," he said.
"Those vehicles sit on our used car lot and that's our own money tied up. We take them to auction and nobody buys them there and we have to bring them back. The payments are big on them, gas is big on them, everything's big on them.
"You may as well put flowers in them because they're going to be a planter until something changes."
How the costs work out
Not everyone is trying to get rid of their large vehicles, however.
Mr. Smail said that in many cases customers are looking for a fuel-efficient vehicle but are still keeping their big ones.
Jay Stenger, of Plum, is just that kind of person. The owner of a Dodge Dakota 4-wheel-drive needed for his small construction business, he was racking up 75 miles a day driving back and forth to his office in Penn, Butler County. With his gas mileage in the mid-teens, he was being hit hard.
He stopped in to visit a friend who buys cars from auction and sells them and saw him working on a Honda Accord. He knew what he had to do.
"I said, 'I see you're working on my new car,' " he recalled. "The big question was could I fit in it. I'm a big guy. We pushed the seat all the way back and down and I fit.
"He told me how much it cost and I bought it. It never made it to the lot."
These days, he drives his Accord back and forth to work and leaves his Dakota in Butler County, using it only for business. He's cut his commuting expenses in half.
"And it's made a lot of places accessible to me where I was not going before," he said, noting he had given up going fishing and shopping for non-essentials because of the cost of running the truck.
Despite soaring gas prices, some car owners are finding it makes economic sense to hang onto their large vehicles. A recent Consumer Reports study shows that even if gasoline were to reach $5 a gallon, the fuel savings from trading in a three-year-old large vehicle that's not yet paid off likely won't make up for the hidden costs of vehicle ownership -- depreciation, interest on financing, insurance costs, maintenance and repair and sales tax, for example. The study used a number of scenarios based on different types of vehicles, including sedans, SUVs and pickup trucks.
"In the end, our analysis of each scenario shows that it's less expensive to tough out another year or two with a gas guzzler than to trade in too early," the Consumer Reports study said.
Will smaller vehicles rule the future or will SUVs and other large vehicles regain their hip, must-have status?
It all depends.
For some, with a lot of disposable income, it doesn't much matter what gasoline costs. They're going to drive what they want to drive so there will always be some kind of market for big vehicles.
For other people, a stabilization of the gasoline market may calm jitters.
"I've been doing this 30 years," said Mr. Antonucci from Rohrich. "Once people get comfortable with fuel prices and get in a routine again, things will change. Years ago when gas prices rose, they stopped buying SUVs and then all of a sudden when gas prices dropped they came back again."
Mr. Smail agreed that the pendulum may swing back to larger vehicles if gas prices drop but is unsure at what point that might be.
"I don't know what it's going to take," he said. "If it drops back, it's going to have to be more than 20 or 30 cents. I think it will need to get back closer to $3 a gallon."
Mr. Cochran said what's happening now is just market forces at work and dealers are adjusting to it and will continue to do so.
"Consumer preferences are shifting and we're shifting with it," he said. "What we do is reflective of what the market is. All dealers are of the same mindset.
"We want to have what people want."
At least for today -- and likely tomorrow -- that's fuel efficiency.
First Published June 1, 2008 12:00 am