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US Auto Makers Feel the Heat of High Gas Prices 

Companies / US Auto's Jul 05, 2008 - 12:51 AM GMT

By: Salman_Khan

Companies The Sport Utility Vehicle has been an American icon ever since it was born into mass popularity during the days of World War II when the American WillysJeep was introduced in the US car market. Vehicle buyers were drawn to their large cabins, higher ride height, and perceived safety. Additionally, full-size SUVs have greater towing capabilities than conventional cars, and can haul trailers, campers and boats. SUVs had the added benefit that they could carry more passengers than a pick-up truck. Finally, a perception of social wealth SUV owners grew.

For 17 years, the Ford F-150 Pick-up truck was the best selling vehicle in America on a monthly basis. That spot was lost to not only one car but to four. The Toyota Camry and Corolla and Honda Civic and Accord all past up the Ford F-150 in sales for the month of May and more vehicles are expected to make the leap.Light truck and SUV sales at major auto makers are down anywhere from 12 percent at Toyota to 37 percent at GM. GM announced plans to close four plants that manufacturer trucks and SUVs . Nissan, Ford and Chrysler all have similar plans.

General Motors Corp., the automaker that popularized the " monster car" Hummer, may sell a mini-car four feet (1.2 meters) shorter than its biggest offering and more than a foot shorter than anything else it markets in the U.S. to win back buyers scared off by high fuel prices. GM may bring the production version of the Chevrolet Beat to the U.S. , people familiar with the plan said. The car, which would normally be reserved for Asia and Latin America , gets as much as 40 miles a gallon, a fuel efficiency topped in the U.S. only by hybrids. The possible American introduction of the Beat would be one step in a fleet downsizing and shift away from fossil fuel-based vehicles that the people said is already under way at Detroit- based GM. Resigned to $4-a-gallon gasoline and stricter pollution rules, the largest U.S. automaker has recognized that its response must go beyond the mothballing of large truck plants, the people said.

GM, turning 100 this year, has few options to re-inventing itself. Mattel Inc., maker of toy cars, has a larger market value than General Motors Corp. for the first time as record U.S. gasoline prices crimp sales of real cars and trucks. The company reported its largest annual loss in 2007, $38.7 billion, and hasn't had a profitable year in the past four. The car maker's U.S. market share hovers at the lowest level since 1925, and last year GM was 3,000 cars away from being dethroned by Toyota Motor Corp. as the world's largest automaker. GM shares fell to the lowest since 1954 this week after an analyst said bankruptcy was ``not impossible'' if the auto market continues to deteriorate.

Besides the Beat, GM is weighing a list of options for refocusing its auto lineup on fuel efficiency rather than performance. They include the U.S. introduction of a small pickup popular in Latin America and an expansion of the number of versions of the Volt plug-in electric car, the people said. GM is also trying to increase production and speed up availability of the successor to the Chevy Cobalt sedan and develop a fuel-efficient alternative to the Cadillac Escalade sport-utility vehicle, they said.

Already, GM has reassigned engineers to many of the projects, according to the people familiar with the planning. The company is taking them from SUV and truck programs suspended while awaiting the return of customers. Now, these people said, GM sees no point in waiting.

Sales of the smallest cars in the U.S. have risen 31 percent in the first half this year as the industry total fell 10 percent and the largest SUVs 31 percent. GM reported a 21 percent plunge in U.S. sales of pickups, SUVs and vans for the first six months. Higher input costs, which can be primarily attributed to a surge is steel prices is also seen as hitting the profitability of SUV makers.

Thus, a clear shift in consumer tastes and preferences is being marked in US, thanks to Crude Oil spike. As pointed out in my earlier post in the same blog, Americans are cutting down on distance travelled on road. American Airline industry too is reeling under the pressure emanating from high Aviation Turbine Fuel ( ATF ). Not surprisingly, American railroad industry has posted a decent comeback this year, with Ridership on Amtrak trains in the Northeast corridor, including those through Springfield , climbing sharply higher. May was the best month ever for the government-owned railroad company, said Amtrak spokeswoman Tracy L. Connell . For the Northeast corridor, from October to May, our ridership was up 11 percent over the same period a year ago, and for May alone, it was up 9.2 percent over the previous May. Other Mass Transit System like Peter Pan Bus Lines, which serves much of the Northeast, has also seen its ridership rising as gas prices have been rising.

Earlier also, during the oil crisis of 1973 when OPEC blocked shipments of crude oil to countries that supported Israel in the Yom Kippur War, Americans and other countries converted to more fuel efficient cars. Before the embargo, American car makers made larger and less fuel efficient vehicles. As the embargo took place, consumers made up their minds with their wallets. Foreign producers like Datsun (Nissan), Toyota , Peugeot, Volkswagen, Mazda and Honda generated record sales during this time. As OPEC lost its hold on oil production, gas fell cheap once again by the 1980s. Americans were driving larger cars once again, albeit with somewhat better fuel efficiency than that of the 1960s and early 1970s. SUV sales finally peaked in 2004 and 2005, with a sales of 4 million SUVs.

One has to wonder though, will we see the SUVs back on top in the American auto market any time soon? This is yet another question, which only the time can tell.

By Salman Khan

Salman Khan is a Commodity Analyst working with a leading Delhi based Indian brokerage firm, Mansukh Securities and Finace Limited as Research Analyst in Commodities. He has a rich experience of tracking Energy, Precious Metals, Base Metals and Agri Complex for last 2 yeas across various International and Indian commodity bourses (NYMEX, COMEX, LME,  CBOT, SHFE, MCX and NCDEX. He is a voracious reader and a prolific writer. He is the inhouse editor of monthly journal "MAKE MORE GUIDE" published by Mansukh Securities and Finance Limited . His articles have also appeared in leadind portals like , and . He also blogs regularly at his personal blog .

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