Special Coverage

NADA Convention & Exposition

ORLANDO, FL – Relatively stable gasoline prices in the last 18 months pose challenges to selling smaller but pricier vehicles, says Paul Taylor, chief economist for the National Automobile Dealers Assn.

Yet, the federal government, citing fuel efficiency, is prodding auto makers to focus more on those fuel-efficient segments, he says on the eve of NADA’s annual convention here.

Hybrid-electric vehicles, in particular, have taken a sales hit two years in a row. Deliveries fell from 315,688 units in 2008 to 290,232 in 2009. HEVs cost $2,000 to $4,000 more than cars with conventional internal-combustion engines.

Although some of the HEV sales decline is a reflection of poor vehicle sales in general last year, much of it is “driven by the low cost of gasoline,” Taylor tells a conference of the American Financial Services Assn.

After nearly a decade of growth spearheaded by the Toyota Prius, HEVs were becoming a big part of the small-car segment, he says. “I used to talk about hybrid sales doubling yearly until they got to a million. But with fuel prices low and the (price) premium on hybrids high, we’re seeing sales drop.”

On the other hand, fullsize truck demand plunged when fuel prices rose in 2008.

“You saw a swing,” says Sid DeBoer, chairman of Lithia Motors Inc., a dealership chain. “When gas prices went to $4 to $5, you couldn’t give a big rig away. Six months later, when gas prices went down, there were incentives on Priuses.”

Auto makers are introducing more small cars to meet U.S. government corporate average fuel economy mandates. CAFE critics question whether enough customers will indeed buy those vehicles, if fuel prices remain relatively low.

“We need a gas-tax increase to fix the nation’s road infrastructure and to get people to buy smaller cars,” DeBoer says at a J.D. Power & Associates conference in conjunction with the NADA convention. “That would be way better than CAFE.”

Oil prices are not expected to increase significantly in the next few years, says Jeff Schuster, J.D. Power’s executive director-automotive forecasting.

But he adds: “Oil prices are hard to predict.”