Hybrids, Fuel-Efficient Cars Still Appeal to Americans, Even With Lower Gasoline Prices

Gasoline prices in the United States may be well below their summer highs, but that doesn't mean that Americans are abandoning new fuel-efficient cars and technologies.

Despite an ease in gas prices, more and more U.S. consumers base auto purchase decisions on fuel economy and energy efficiency, as they did when gas prices peaked at $3.03 a gallon nationwide this past August.

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Even with gas prices steadily declining for the past four months, “we have not seen a collective amnesia among American car buyers,” said James Kliesch, research associate and principal vehicle analyst at the American Council for an Energy-Efficient Economy (ACEEE). “On a whole, Americans are collectively more responsive to fuel prices.”

The evidence is in the results of this year’s auto sales.

In the first 10 months of the year, Toyota Motor Corp. (TM) — which has led the industry with fuel efficient cars like the Prius — expanded its share of the U.S. market by 2 percentage points, to 15.2 percent, while General Motors Corp. (GM), Ford Motor Co. (F) and Daimler Chrysler’s (DCX) Chrysler unit all lost share, as buyers continued to choose smaller and more fuel-efficient vehicles.

Specifically, sales of energy-efficient Japanese cars soared once again with Toyota posting best-ever November sales of 196,695 vehicles, an increase of 15.9 percent over November 2005. Meanwhile, Ford — best known for its pickups and sports utility vehicles and usually No. 2 in U.S. sales — was pushed to fourth in sales last month behind both Toyota and Daimler Chrysler.

"People have come to realize that the more fuel efficient their vehicle, the less susceptible they are to changes in gasoline prices," Kliesch said. "That still holds true today."

Kliesch, also author of the ACEEE’s Green Book — a guide to the top-ranked 2006 cars and trucks according to environmental friendliness — believes that after Hurricane Katrina, Americans underwent a seed shift in mentality with respect to fuel economy.

Kliesch also feels this mindset will lend to a continued interest in hybrid vehicles, especially as automakers branch these combined energy cars out into new segments of the market.

Sales of hybrids, which combine gasoline engines with battery-powered electric motors, also continued to rise in November with 18,283 units sold, an increase of 13.5 percent over last year. And according to J.D. Power Asia Pacific, sales of hybrid vehicles will more than triple to 780,000 vehicles by 2012 from 212,000 sold in 2005.

Paul Taylor, chief economist for the National Automobile Dealers Association, also believes that U.S. consumers are more conscious about the new realities of gasoline. However, he also says that consumers will continue to buy the size of vehicle that best meets their lifestyle needs.

"Consumers do take gas prices into consideration [when buying cars], but they are more focused on the total cost of the vehicle," Taylor said. "Regardless of whether gas is $2 or $3, consumers are looking to purchase a car that will fit their needs.

“The price of gas is more likely to influence what type of drive-train option a family chooses in a car, rather than the car itself,” Taylor said.

For instance, if a family needed a SUV based on their lifestyle needs, they may choose to buy a 4-cylinder compact SUV Ford Escape rather than a larger 6-cylinder Ford Explorer, Taylor explains.

"This is why cross-over utility vehicles are and will continue to be an important part of the marketplace," he added.

In fact, the compact crossover segment, which offers consumers SUV functionality, a car-like ride, plus good fuel economy, is one of the fastest growing in the industry, according to real-time transaction data compiled by the Power Information Network (PIN), a division of J.D. Power and Associates.

Owners in every non-luxury segment, except large vans, have been switching to compact crossovers at a greater rate in the third and fourth quarters of this year than they did in the fourth quarter of 2003, according to PIN. In October and early November, more than four of every 10 compact crossover owners traded for another one, up more than 15 percentage points from three years ago.

Nonetheless, Roger Diwan, an analyst at PFC Energy, an industry consulting firm in Washington, doesn’t believe that people are overwhelmingly becoming more energy conscious.

He believes that Americans have cut their gasoline consumption as a response to higher gas prices.

"The slower demand we have seen for gas is not due to a complete shift in the mindset of Americans to become more fuel efficient," Diwan said.

Diwan predicts that demand for gas will increase again in 2007, causing prices to also rise again. Although he assures that consumers are not likely to see $3 gas again — barring some exceptions such as another natural disaster — he does expect prices to rise above the current self-serve average of around $2.27.

While Diwan said the U.S. is not where it needs to be in terms of energy and gas-conscious psychologies, he also said that there are "signs of improvement," especially as the situation in Iraq keeps fuel-efficiency on the minds of Americans.

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