Higher Gas Prices Fuel U.S. Small Car Sales

Conventional wisdom about American auto buyers is that all they need to do is catch a whiff of a surge in gasoline prices, and they flock to higher-mileage vehicles — or, in a more extreme reaction, despair of buying a new vehicle at all because they're worried. U.S. auto sales for February showed consumers reflexively moving quickly to the former behavior while, to the industry's relief, continuing to power overall sales ahead at a brisk pace.

Small cars including the Chevrolet Cruze, Ford Focus, Honda Civic, Hyundai Elantra, Kia Optima, Toyota's Prius hybrid and even the recently maligned Chevrolet Volt gained significantly in sales, especially as the month went on and media and political chatter about the arrival of $4- and $5-a-gallon gasoline picked up.

"They're more likely to have an effect on [sales] mix within the industry than on the total sales number," Jonathan Browning, CEO of Volkswagen of America, told reporters about rising gas prices. The trend, for example, is boosting sales of short-in-supply diesel versions of VW models such as its mid-size Passat sedan.

Bob Carter, Toyota Division general manager, echoed him. "Fuel economy remains top of mind for consumers, and they're responding to Toyota's lineup, which is the most fuel-efficient in the industry," he said. "We expect that high gas prices will continue to be a top purchase consideration for consumers."

But just as important, so far higher gasoline prices, and even rumors of further increases, haven't retarded sales numbers. In fact, auto executives said almost uniformly that sales momentum picked up as February went on, total February sales unfolded at the highest rate for any month since early 2008.

Even Chevrolet's recently stunted Volt got in on the surge. Just three months after safety concerns tripped it up, the plug-in hybrid sold 1,023 units in February, back to about the level of last fall.

Yet there's no doubt that the potential political significance of gasoline prices, as well as their economic impact, is rising along with the pump tab. Republican presidential candidates are fueling that particular fire, but the Obama administration is adding to the flames as well. U.S. Energy Secretary Steven Chu, for instance, admitted this week to a House committee that the federal government isn't particularly working to try to lower gasoline prices.

Regardless of any political effects, Don Johnson, vice president of U.S. sales for General Motors, was among executives today who downplayed concerns about even robustly rising gas prices knocking the strengthening sales recovery off track. "With gas prices going up, for many owners of older vehicles, we expect that will actually drive them to purchase new vehicles" in search of better fuel economy.

And gas-price reactions "are typically a short-term phenomenon," he told reporters. "The thing that can impact them is if prices are volatile. Once gas prices stabilize [even at a higher level], we think the industry will continue on its current [sales] trend. The only caveat would be a true shock to the [economic] system" from some unforeseen geopolitical event.