Business
See other Business Articles
Title: Rising Gas Prices: Just What Detroit's Revival Doesn't Need Now
Source:
Daily Finance
URL Source: http://www.dailyfinance.com/story/f ... s-automakers-revival/19858980/
Published: Feb 27, 2011
Author: DAVID SCHEPP
Post Date: 2011-02-27 13:55:49 by Brian S
Keywords: None
Views: 1227
Comments: 3
The rising cost of gasoline threatens to stall an already anemic economic recovery, leaving many Americans to wonder whether another recession might be just around the corner. Among industries that could be deeply affected by the rising cost of fuel is the domestic automotive sector, which has only just begun to return to prosperity. Consumers May Put the Brakes on Car Purchases With an average 18.7 mpg for its fleet, Chrysler trails Ford's average, 20.5 mpg, and GM's 19.9, and is significantly lower than that of Toyota Motor (TM), the most fuel-efficient manufacturer in the U.S. with a fleet average 25.4 mpg, based on final production data for the 2009 model year, the most recent available.
Both Ford Motor (F) and General Motors (GM) recorded stellar profits last year as both consumers and businesses resumed new-car purchases. On Thursday, GM reported its first profit in six years -- totaling $4.7 billion for all of 2010. That's the best performance the Detroit-based company has seen since 1999, when sales of gas-guzzling sports-utility vehicles and pickup trucks drove up profits.
Similarly, Ford reported in January that 2010 was its best year since 1999. Last year, the Dearborn, Mich.-based automaker racked up $6.6 billion in profits as sales jumped 20%, in part because of rising demand for its full-size F-Series pickup trucks.
But just as it did in the summer of 2008, when prices at the pump soared above $4 a gallon, the cost of gasoline may give car buyers reason to pause and cause vehicle sales to stall.
Gas prices on Friday were nowhere near those lofty levels, but consumers are indeed shelling out a lot more. At a nationwide average of $3.29 a gallon, according to AAA's Daily Fuel Gauge Report, filling up costs 22% more than it did a year ago.
Three years ago, when gas prices hit record levels, consumers put the brakes on purchases, contributing to the recession, says Jill Schlesinger, editor-at-large at CBS/MoneyWatch.
"You also saw the car sales plummet after that," Schlesinger told the MarketPlace Morning Report radio program. "And certainly when you look at the U.S. automakers now, if gas prices are up, this really does not portend well for them."
Still, gas prices will have to rise a lot more -- reaching the range of $4 to $4.50 a gallon -- before consumers start thinking twice about buying new cars and trucks, says George Magliano, auto analyst with IHS Global Insight. Further, he says, pump prices will have to stay at those high prices for a sustained period -- a year or two, before automakers begin seeing a shift in buying habits.
Fuel-Efficiency Will Be a Key Consideration
The reason for the drawn-out response lies in the automakers themselves, "It's different from the way it was in 2008," Magliano says in an interview. Car companies now offer a greater number of smaller, more fuel-efficient vehicles and can make money selling them. They also sell fewer big cars and trucks, he says.
Chrysler Group, the smallest of the Detroit Three, is perhaps most vulnerable of all. It has yet to return to profitability, despite improved sales last year, and its vehicle lineup is one of the thirstiest in the industry, according to the Environmental Protection Agency.
High fuel prices may not only affect the automakers' sales but their stock prices as well. Despite its upbeat earnings report on Thursday, shares of GM sank to the lowest levels since the stock went public last November. Higher gas prices combined with instability in the Middle East led U.S. markets down overall. GM shares sank as low as $32.05 each, before rebounding to close at $33.02 -- just pennies above last fall's initial offering price.
That's proof that GM, despite its remarkable comeback, can't escape problems half a world away. Fear of uncertainty in the Middle East and higher gas prices directly affect car sales and GM, Gary Bradshaw, investment analyst at Hodges Capital Management, said in an interview on NPR.
"I think that person walking in the showroom, when he walks by a pump and it's $3.29 or $3.39, they're going to think, 'well, you know, maybe I ought to hold off and wait a little bit,'" Bradshaw said. "And so there's a little hesitation right now."
Post Comment Private Reply Ignore Thread
Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: Brian S (#0)
0 to 60 in 5.6 seconds. No tail pipe emissions. 100% electric. 300 miles on a charge oops... the brain dead idiots in Detroit didn't invent it. A bunch of guys in California who made their money on the Internet did.
0 to 60 in 3.7 seconds (faster than a Porsche). 0 tailpipe emissions. 100% electric. 245 miles on a charge. oops... the brain dead idiots in Detroit didn't invent it. A bunch of guys in California who made their money on the Internet did.
That Tesla will be in my garage someday long as the SRP remains semi reasonable in the 60Ks.
Death to everybody who does not get outta my way. To: e_type_jag (#1) "I hate that you're off the plantation" 9-03-2010 Sheets Jerx .........(Why Fred???why the hate???....was it because my left Vibram sole made a lasting imprint on your face as I stepped over your constantly prone body and hopped the plantation wall. Message to lycra bra cross dressing dwarf if it returns....FOAD
"Everything that can be invented has been invented."-- Charles Duell, Commissioner of US Patent Office, 1899
#2. To: Brian S (#0)
(Edited)
"Everything that can be invented has been invented."-- Charles Duell, Commissioner of US Patent Office, 1899
#3. To: jwpegler (#1)
Top • Page Up • Full Thread • Page Down • Bottom/Latest
[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Mail] [Sign-in] [Setup] [Help] [Register]