Industry Ready if Gas Prices Spark Small-Car Demand

Caught off-guard four years ago, the U.S. auto industry should be ready if anticipated record gas-price increases spark a surge in small-car demand, according to WardsAuto data.

Auto makers have enough available production capacity to match incremental demand, even if customers in the second quarter clamor for small cars at the rate they did last month.

Sales of car models in WardsAuto’s Lower and Upper Small categories jumped a combined 22% in January, compared with like-2011.

In second-quarter 2008, when demand outstripped supply against a backdrop of crippling pump-price increases, deliveries of B- and C-segment cars rose 17.2% from prior-year.

Analysts currently predict regular unleaded gas may go as high as $5 or $6 a gallon, due to increasing demand in China, political tension in the oil-rich Middle East and persistent Wall Street speculation about price trends.

The national average per-gallon price of regular unleaded gas hit $3.61 Thursday, up $0.23 from January, according to the American Automobile Assn. President Obama also addresses gas prices in a speech, underscoring increasing public frustration with the trend.

By July 11, 2008, when the national average price hit a record of $4.11, auto makers were tapped out of inventory of gas-sipping B- and C-segment models.

Days’ supply of models in WardsAuto’s Lower Small and Upper Small categories dwindled to 30 in May 2008 and 29 in June 2008.

In May of 2008, Honda sold 53,299 units of its C-segment Civic, which was two to three times higher than normal.

If small-car demand grows 30% February through June, auto makers would need to schedule overtime at their North American plants and those overseas sites that export to the U.S.

Many popular subcompact and compact models are assembled in North America, such as the Civic, Chevy Sonic and Cruze, Ford Fiesta and Focus, Hyundai Elantra, Nissan Versa and Sentra, and the Volkswagen Jetta.

However, some models, such as the Japan-built Honda Fit and Toyota Yaris and Korea-assembled Hyundai Accent and Kia Rio, come from overseas.

A 35% year-over-year February-June increase in B- and C-car sales would represent the industry’s breaking point because plants could not meed demand, even with overtime, WardsAuto forecasts.

– with Haig Stoddard

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