Power Reports: Gas Prices Begin to Sway New-Vehicle Buyers Toward Smaller Versions of Trucks and Utility Vehicles

Power Reports: Gas Prices Begin to Sway New-Vehicle Buyers Toward Smaller Versions of Trucks and Utility Vehicles

Demand for Small Vehicles Increases as Gas Prices Rise

WESTLAKE VILLAGE, Calif., May 16 -- Rising gasoline prices have some owners of large and midsize trucks trading to smaller vehicles, according to real-time retail transaction data from the Power Information Network (PIN), a division of J.D. Power and Associates.

Gasoline prices have surged more than 20 cents in recent weeks to a record nationwide average of $3.10 per gallon, surpassing the previous record of $3.07 per gallon set in September 2005, according to the U.S. Energy Information Administration. As gas prices rise, owner loyalty in the large pickup and midsize and large utility vehicle segments drops, according to PIN data gathered between February and April 2007. Owner loyalty is measured by the percent of owners in any given segment who trade for another vehicle in the same segment.

"We're seeing a broad, long-term -- but gradual -- movement to smaller vehicles," says Tom Libby, senior director of industry analysis at PIN. "For example, during periods of high gas prices over the past two years, we've seen movement from larger to smaller SUVs. However, the total SUV pie remains largely intact."

While rising gas prices are having a negative effect on large vehicle segments, owner loyalty has increased for small cars. Additionally, sales of small vehicles, including cars and light trucks, as a percentage of total new-vehicle retail sales, have risen from 26.3 percent in the first quarter of 2004 to 31.8 percent in the first quarter of 2007. Furthermore, PIN data shows that higher gas prices have had only a moderate impact on repeat purchases of midsize crossovers. The fact that several new midsize crossovers have just entered the market likely has softened the impact of rising gas prices on the segment, Libby said.

Not every new-vehicle segment has been affected by rising gas prices. For example, PIN findings show that owner loyalty for large and midsize cars, small crossovers, and small SUVs has remained relatively unchanged in recent months.

Libby notes that all of these trends are consistent with the patterns observed in spring 2006 when gas prices also rose.

Increased demand for smaller vehicles, coupled with higher gas prices, has also given four-cylinder engines a boost in powertrain market share. Four-cylinder engines as a percent of total retail sales has increased from 27.5 percent in April 2004 to 35.7 percent in April 2007.

While vehicles powered by four-cylinder engines are receiving a lift from rising gas prices, so are new vehicles powered by hybrid-electric engines. Hybrid vehicle sales have shown a strong correlation to gas prices. For more than two years, hybrid sales have increased as gas prices have risen and have decreased as gas prices have fallen.

Additionally, PIN data shows that the retail turn rates -- the amount of time a new vehicle spends on a dealership lot before being sold -- decrease for both new and used small cars as the price of gas increases. In particular, these retail turn rates suggest that certain parts of the used-vehicle market, such as small cars, compact basic cars and small luxury crossovers benefit when fuel prices rise.

PIN and J.D. Power and Associates data suggest that the small car market -- both new and used -- will continue to strengthen as fuel prices escalate.

"The recent strength of the small vehicle segments -- pricing, styling and an increasing number of new models -- is receiving an additional boost from high gas prices," said Bob Schnorbus, chief economist at J.D. Power and Associates. "We're expecting the small vehicle segments to continue to grow, regardless of gas prices, but higher gas prices certainly will help these segments relative to others."

About Power Information Network (PIN)

PIN's automotive solutions are based on the collection and analysis of daily new- and used-vehicle retail transaction information from more than 10,000 automotive dealership franchises in North America. PIN's industry-leading automotive solutions incorporate consumer demand and sales information to improve business for automotive dealers, manufacturers, lenders, and other companies in the industry. Additional information is available at www.powerinfonet.com.

About J.D. Power and Associates

Headquartered in Westlake Village, Calif., J.D. Power and Associates is an ISO 9001-registered global marketing information services firm operating in key business sectors including market research, forecasting, performance improvement, training and customer satisfaction. The firm's quality and satisfaction measurements are based on responses from millions of consumers annually. For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.

About The McGraw-Hill Companies:

Founded in 1888, The McGraw-Hill Companies is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2006 were $6.3 billion. Additional information is available at www.mcgraw-hill.com.