• by Karl Greenberg , May 7, 2007

With driving season upon us, and gasoline prices spiking early, automakers are talking fuel efficiency. Per AAA, gasoline prices are nudging records for this time of year. Today, prices are averaging around $3.00 for regular unleaded, per the AAA travel group--up nearly 30 cents since April, and a dime above this time last year. Analysts say the national average could hit $3.25 as demand increases.

Todd Turner with Car Concepts, Thousand Oaks, Calif., says the issue for consumers is sustained pricing. Buyers will change their habits only if gas prices stay high. "If they stay at these levels over a period of time, it will change consumer behavior," he says. Last year, spring prices were also high--although, on average, a dime lower than they are now. But paradoxically, by summer, when one would expect demand to skyrocket, they had dropped.

Last month, sales of full-sized SUVs did not sink--although sales of mid-sized SUVs did, because, as Turner points out, consumers shopping mid-sized vehicles have more fuel-efficient alternatives to truck-based SUVs in crossovers. "Right now, we are not seeing anything that indicates that the buying behavior has made a huge shift. That will change, though, if gasoline prices stay high or get worse." In California, per AAA, gasoline is now at $3.30 a gallon for months, with premium at $3.60. "It could touch $4 this month," says Turner.

The relative stability of the full-size segment is reflected in data from J.D. Power and Associates' Power Information Network data, which shows there has been a steady increase in compact vehicle sales since 2000. Those sales appear to be carved out of the mid-sized vehicle market, not the large vehicle market.

For instance, in 2000, compact vehicle sales ranged between 21.5% and 25.12% of the total vehicle market. in 2006, it ranged between 28% and 32.7% of the U.S. vehicle market. In the first quarter, sales were of compacts were 31.8% of the market, over 10% higher than in 2000, while first quarter, 2007 sales of mid-sized vehicles were 40% of the market, over 10% less than in the first quarter, 2000. "There's been a steady trend up for compacts," he says.

Ultimately, says Turner, if consumers are forced to sacrifice critical lifestyle choices to gasoline, they will buy sippers. "If the price of gasoline prevents consumers from doing the things they would rather do, they will make the change, but they won't do it on financial considerations alone--it's financial considerations impacting their choice of lifestyle. If that lifestyle is dependent on a large SUV, they'll keep the SUV no matter what the gas prices are. But if their lifestyle depends on restaurants, vacations, doing this or that, they may get rid of it."

Tom Libby, analyst with J.D. Power, says several factors play into the increasing sales of compact vehicles. Principal among them the fact that the vehicles exist--that automakers have decided to focus on that part of the market, a segment that had been neglected for years.

"It's higher gas prices, it's the greater variety of vehicles--very small cars and compact crossovers and also models in the compact-sporty segment, like Pontiac Solstice and Saturn Sky, so there's a lot of drivers," he says. "But we don't think there will be a big spike in sales, even with gasoline at $3. If you factor inflation, gasoline prices are actually lower than in early '80s. And consumers are conditioned to expect prices to come down. "Still, we are seeing a gradual shift, and that will continue; it's a subtle, gradual movement."