As hurricanes hammer the U.S. Gulf Coast and send gas prices soaring, industry watchers anticipate hard times ahead for Detroit, and a sharp acceleration away from gas-guzzling SUVs, which until last year were the auto industry's darling. Instead, marketers are touting fuel efficiency and consumers are beginning to look with new interest at smaller cars and hybrid vehicles.
"It's not a subtle shift," said Todd Turner, president of consultant CarConcepts, noting that the gas pains will be particularly felt by Detroit. General Motors Corp., he said, is particularly dependent on big SUVs and pickups, since the segment is key to its revenue. "GM just spent a good amount of money," he said, redoing new lines coming next year.
Even before Katrina sent gas prices soaring, SUVs were hurting: Sales of full-size SUVs fell 10.7% and mid-size 1.7% in the first eight months of 2005, according to Automotive News. While full-size pickup sales actually rose by 9.1% during the same time to 1.75 million units, experts wrote that off to hefty incentives.
Ad support, too, has taken a nosedive. Last year $762 million was spent advertising the top 10 selling SUVs; for the first half of this year only $307 million was spent. Even if that spending rate is maintained through the end of the year, which now looks unlikely, total spending on the leading gas-guzzlers will fall at least $100 million this year.
The recent $3 per gallon mark was "the psychological level" that has shaken consumers, said Ian Beavis, VP-marketing at Kia Motors America, who reports consumers turning in their gas-guzzlers for smaller cars at Kia dealerships. "Katrina is the meteor that could extinguish some of these dinosaurs," he said.
Indeed, sales in that SUV segment are likely to shrink from a million units annually to 750,000, predicts Jim Sanfilippo, exec VP of Omnicom Group's auto consultant AMCI, noting "there's a new sense of concern about gas prices." Art Spinella, president of CNW Marketing Research, anticipates buyers to show a more practical side, moving away from buying SUVs as a fashion statement-he said about 250,000 units are bought for that reason-and instead buying them as a true utility vehicle for towing or families.
Some of the spending has already been moved to tout gas-sippers. A week before Hurricane Katrina hit on Aug. 29, only two auto brands, GM's Saab and Chevrolet, advertised fuel efficiency, according to TNS. But in the first two weeks of September, a total of seven car companies created 18 new ads (across 12 brands) touting gas mileage.
Toyota, Ford's Mercury, Hyundai and GM's Saturn, Pontiac and Buick all dialed up the fuel efficiency message in the first weeks of September, said Jon Swallen, senior VP-research at TNS, though that tack was still being taken by the minority of auto advertisers, he said.
Consumers appear to be listening. For the first time in years, CNW Market Research found in August that fuel economy outranked performance as a reason to buy a new vehicle-46% vs. 39.7%. In June and July, the two why-buys were virtually tied at 43% as very or somewhat important.
Those looking to buy new vehicles are also more open to hybrid-engine vehicles. Mr. Spinella that in the first two weeks of September the auto consultant found more than a third of people it surveyed who intended to buy new vehicles said they would consider a new hybrid car or truck, up from about 10% for the same period in August. The 32,000-plus consumers CNW surveyed this month said they'd be willing to pay $3,000 more for a hybrid than a gas-only model vs. nearly $1,000 more in the August period.