Small Car Frenzy: Too Much, Too Soon?
According to an article over at Reuters, the coming onslaught of new small car models from major manufacturers over the course of the next year may cause an oversupply in that market segment and force automakers into a situation of offering large incentives for them at reduced profits.
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In order to satisfy the new CAFE regulations that will require automakers to average 35.5 mpg over their new car fleets by 2016, automakers are bringing a glut of small, fuel-efficient cars back to the U.S. market. Many of these cars have actually been on the road in foreign countries (namely Europe) for a long time, but have been recently retooled for the U.S. market.
Automakers such as Ford have spent a ton of resources marketing these new small cars to a younger crowd, and have bet the barn on the success of them as well as a continuing trend of consumer preference for smaller autos.
But market research firm CSM Worldwide says that these small cars are coming on the market at a time when fuel prices seem to have stabilized, which may cause demand for them to drop off. With the price of gas in the U.S. leveling off at around $3 per gallon, U.S. consumers may not feel as much of a need for the cars as they have over the last year.
Although I think this assertion has some amount of truth to it, I would hope that the average U.S. consumer isn’t so blind to the fact that regardless of our current economic blip, there isn’t a cold chance in hell that gas prices will do anything but climb in the near future. I’m no economist, but with demand from China skyrocketing and countries like Mexico, Russia, and India breathing at its heels, what else could the outcome be?
Yet, maybe I have too much faith in humanity—we certainly seem to have the collective long-term memory of a fish these days. It’s true that there needs to be some sort of real external pressure to drive consumer habits to change… I guess it’s not enough to have the threat of a real external pressure?
Source: Reuters
Image Credit: Nick Chambers
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December 9th, 2009 at 7:47 pm
It’s pretty bold for somebody to predict that gas prices are going to stabilize after what’s happened over the past few years. As soon as China returns to their policy of gradually allowing their currency to strengthen against the dollar, the price of oil will start to go up regardless of whether the US economy improves.
December 10th, 2009 at 10:17 am
Nick,
Hey, don’t knock fish memories! Remember, salmon always go back to spawn where they were born. Plus, it’s not just gas prices that encourage small car use, it’s a family’s overall budget. Less people have disposable income for larger cars nowadays.
December 10th, 2009 at 11:24 am
Carbon,
You’re right, I was being mean to the fish. But what do they know, they’ll forget about it in 3, 2, 1… there. Problem solved. Unless they read this piece again. But then all you have to do is wait another three seconds and, voila!
I think you’re right, but remember, you and I live in a bubble of other people who think rationally about these things. As the economy improves, if gas prices remain stable, most people, I’m afraid, will too easily forget about the problems they had in the past.
Also, it’s not so much that there won’t be a market for small cars, just that there may be too many choices hitting the market all at once, causing a glut of these types of cars in a largely untested market. While this may be good for the consumer, it could make it difficult for these companies to justify developing more small cars for the US in the future.
December 11th, 2009 at 8:43 am
An oversupply of small and efficient cars? We heard not long ago that there was an oversupply of large pick-up trucks. I just can’t imagine the market is moving from one end to the other in the matter of only a few months.
On the contrary, I think that as the choice of smaller cars is going larger, with fresh new models, such as the Ford Fiesta or the Chevy Cruze, people would be enticed to that segment.
December 12th, 2009 at 12:07 pm
I agree Moteur. I’m thinking more like “it’s about time” rather than oversupply.
I would guess that there are a lot of people like me who would buy an American car if it wasn’t an overpriced giant block of iron that breaks down all the time. Though today, they may not break down as often as when I bought my Toyota, bringing proven small car design from the European market should have been done years ago.
Offering cars like the Chevy Aveo is not going to convince a Toyota driver to switch. That is an obvious ‘fleet mileage reducer’ there. I would just as soon buy a Yugo.
December 12th, 2009 at 6:09 pm
Oversupply will be good news for consumers.