Sales of small cars likely to go up with gasoline-price increases

Article by Christian Andrei, on January 17, 2011

Sales of new smaller cars that were recently introduced appear to be assured as U.S. gasoline prices are on the rise and on track to reach the $4-plus per gallon peak that was hit in 2008 right before the recession.

But according to analysts and executives who were interviewed at the Detroit Auto Show, they are sure that the forecasts are wrong but they can’t determine yet by how much.

Years of design and manufacturing planning can be wiped out in days by the drastic fluctuations in the price of gasoline and of the materials that make up the thousands of car components such as steel, aluminum, copper and platinum.

When gasoline prices significantly increased in the summer of 2008, the demand for small cars such as the Toyota Corolla, Honda Civic and Ford Focus was so high that they cleaned out the immediate inventory. But since gas prices were pulled back down, the number newly built small cars on dealer lots grew.

On the sidelines of the Detroit Auto Show, Ford Motor Co. Executive Chairman Bill Ford said that it predicts that gasoline prices will “march upward over time" and so it has built its entire strategy around it.

The gasoline price increases this time have been slower than in 2008 when it surged by 32% from January to $4.11 per gallon in July, then dropped to $1.65 by the end of the year.

Topics: sales, small car

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