Herb Shuldiner MOTOR MATTERS

Friday, August 15, 2008

Skyrocketing fuel prices will change the landscape of auto retailing, according to a new study on how consumers approach future vehicle purchases.

The study, which was conducted by Auto Futures Group LLC and TechnoMetrica Market Intelligence Inc., shows new vehicle purchasing choices could be vastly altered by high fuel prices. The study also reveals motorists do not plan to relinquish ownership of personal vehicles.

The study surveyed 908 car and truck owners nationwide to learn how high they think fuel prices will climb and how escalating prices might impact their future vehicle-purchase decisions.

Sales for the subcompact Honda Fit rose 78 percent over one year ago, reflecting the

current fuel-driven consumer shift to small cars.

Bob Austin, a senior partner of AFG, says 92 percent of drivers expect gasoline to remain above $4 per gallon. One-third believes fuel prices will top $5 per gallon and half the motorists surveyed say prices will rise above $6 per gallon.

Two out of three car owners surveyed say they are driving less and using their family's most fuel-efficient vehicle as their primary mode of transportation. Some 87 percent say their next vehicle will be more fuel-efficient and 38 percent say they are considering selling or trading their present car or truck for something that gets better gas mileage.

Surprisingly, a large percentage of those who took part in the survey say they would buy vehicles from non-traditional companies if fuel exceeded $6 per gallon in price. For example, 68 percent indicate they would consider purchasing a car from General Electric Co. and 43 percent say Dell Inc. possibly could sell them a vehicle. Some 34 percent would be willing to buy a car from Google Inc.

About 30 percent of the respondents said they would consider purchasing a vehicle made in India or China. At the pace automakers from those countries are entering the U.S. market that may be more than a decade away.

"In the past, drivers held back temporarily when gas became scarce or there were price spikes," says Bert Holland, a senior partner in AFG. "But this time there is a marked shift in both expectations and behavior.

"People are driving less and fuel economy is becoming a major purchase influence," he says. "The readiness to accept vehicles from non-automotive brands is growing more rapidly than we expected."

AFG says the study reveals motorists still want private vehicles, but plan to purchase or lease smaller, more fuel-efficient models.

Hybrids are the preferred alternative to conventional gasoline-powered cars, but diesels are of limited interest to the survey group.

"It is obvious from this study that $4 is a tipping point," says Raghavan Mayur, president of Mahwah, N.J.-based TechnoMetrica. "People are not merely making minor adjustments to their driving habits; they are considering radical changes we have not seen previously."

Those surveyed also were asked about the type of vehicle they likely would buy in the event fuel prices soared $6 to $8 per gallon. At $4, 37 percent say they plan to purchase a subcompact or compact vehicle. This leaps to 58 percent at $6 per gallon and to 65 percent at $8 per gallon.

Those intending to purchase full-size or midsize cars drop from 38 percent today to less than 19 percent at $8 per gallon. At that price, the survey group indicates Sport Utility Vehicle purchases would shrink to less than 33 percent of today's level.

AFG is a small market research company headquartered in Ridgewood, N.J. It recently was created to offer market guidance to companies seeking to enter the North American auto market. It consists of three senior partners who are veteran auto industry marketing and engineering experts.

Austin spent more than three decades as a marketing communications executive at Volvo Cars of North America Inc. and recently retired as head of U.S. marketing communications for Rolls-Royce Motor Cars Ltd.

Holland is a former engineering executive at BMW of North America LLC and Porsche Cars North America Inc. The third principal is Bill Pettit, a former research manager for BMW of North America.