US automakers in a strong position to weather rising gas prices

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U.S. automakers

New fuel efficient vehicles like the Ford Focus have U.S. automakers in better shape to sustain consumer demand as gas prices rise. Image CC resedabear/Flickr

Rising gas prices are seen by some as an ill-timed threat to U.S. automakers just as the industry appears to have recovered from the recession. Shortly after U.S. automakers reported double-digit sales gains for February, gas prices rose 22 percent higher than the same time a year before. But analysts suggest that the U.S. auto industry is better positioned to weather rising gas prices now than it was when prices exceeded $4 a gallon in 2008.

U.S. auto sales exceeding expectations

U.S. automakers are celebrating February sales that greatly exceeded expectations. At GM, the largest U.S. automaker, sales soared 46 percent last month, blowing away the 36 percent bump business analysts were expecting. Take away fleet sales and other wholesale buyers and GM’s retail sales alone rose by 70 percent. Ford reported February sales up 14 percent from February 2010, and Chrysler sales were up 13 percent. The recent surge in gas prices is bringing back memories of 2008, when gas prices soared, consumers quit buying cars, and the collapse of U.S. automakers contributed to the worst recession since the Great Depression. Last week GM shares dropped to their lowest level since the stock went public last fall.

A stronger lineup of fuel efficient vehicles

The U.S. auto industry was caught in a trap in 2008 when gas prices climbed to more than $4 a gallon. Dealer lots were full of big trucks and SUVs that U.S. automakers couldn’t even give away. But this time around, the U.S. auto industry appears to have developed a knack for fuel efficiency that is keeping pace with the rising price of gas. Unlike three years ago, U.S. automakers have a full menu of fuel efficient vehicles. Ford has taken the lead, with downsized engines and a more nimble lineup of fuel efficient cars. Last week the Environmental Protection Agency gave a version of the 2012 Ford Focus a 40 mpg highway rating. Ford now has four vehicles hitting 40 mpg and an overall average of 20.5 mpg. GM is close behind at 19.9 and Chrysler’s fleet averages 18.7.

How much will high gas prices hurt?

U.S. automakers may still share the pain of consumers more than their foreign rivals if gas prices continue to rise as expected. Toyota is still far ahead of the pack with a fleet average of 25.4 mpg. Meanwhile, the average gas price in the U.S. had reached $3.51 a gallon by March 8. The average U.S. gas price for all of 2010 was $2.79. But analysts have said that because Detroit is making smaller, more fuel efficient vehicles, gas prices will have to climb as high as $4.50 a gallon before consumers quit buying American cars and trucks. Plus, the impact may not be as immediate as in 2008. According to some auto industry experts, gas prices would have to stay that high for a year or more before U.S. auto sales are affected.


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