By JACK HOUGH
U.S. carmakers suffered> a bumpy ride in recent years but today have much to sound their horns about. When a 2008 oil spike and economic downturn sent U.S. vehicle sales plunging, the industry slashed production and costs, consolidated models and dealerships and secured union concessions. Now sales, profits and share prices are once again rising.
Crude oil's price is also soaring again, however. That threatens to snuff out new car demand before it has fully recovered. But maybe not. Carmakers now appear better equipped for costly fuel. Since 2009 they've made their biggest fuel efficiency gains in a generation. So wide is the miles-per-gallon gap between America's existing car fleet and its new models, in fact, that higher pump prices might even nudge buyers toward the lots.
Oil prices have roughly tripled since the start of 2009, rising first on emerging market demand and recently on Middle East unrest. A wave of street revolts against aging strongmen has remade the governments of Tunisia and Egypt and left those of Libya, Bahrain, Iran, Algeria, Yemen and even Jordan on edge.
Gasoline prices will rise 37 cents per gallon to an average of $3.15 this year, the U.S. Energy Information Administration said on Feb. 8. That forecast could prove too low. It was based on an average 2011 price of $93 per barrel for West Texas Intermediate crude, a U.S. oil benchmark, which fetched more than $97 per barrel Wednesday. Brent crude, a European variety often used as a benchmark for Middle East oil, recently sold for $110 per barrel. About two-thirds of the pump price of gasoline can be traced to crude oil prices.
But today's new cars need less of the stuff. Passenger cars got an average of 28.2 miles per gallon in 1986. It took until 2005 for them to break 30. Last year they neared 34. In a November report, the Environmental Protection Agency said 2009 gains in fuel economy were the largest since its data series began in 1975.
Averages might understate the pace of change, because some of the most striking efficiency gains are for just-launched or soon-to-launch models. The Chevy Volt, a plug-in electric car, launched in mid-December in seven markets, displacing the hybrid-electric Toyota Prius as America's most fuel-efficient car. It wasn't a close comparison. The Prius gets 50 miles per gallon (about the same as the 1980 diesel-powered Volkswagen Rabbit your correspondent drove as a teenager.) The Chevy Volt's efficiency, converted to gasoline terms, works out to 93 miles per gallon, reckons the Environmental Protection Agency. The car won't attract bargain hunters at a starting price of about $40,000, but it qualifies buyers for a $7,500 tax credit and battery costs, a key price contributor, are falling fast.
The Volt 2012 models will sell nationwide later this year. Nissan recently launched an electric car, the Leaf, which gets even better mileage (but has no gasoline engine for long trips, like the Volt) and costs under $33,000 without extras. Ford (F)
Pike Research, a clean-tech forecaster, figures the U.S. will sell 650,000 electric vehicles a year by 2015, followed by China with 560,000. That's a relatively small number. Americans bought more than 16 million vehicles a year before the recent recession plunged sales to a pace of fewer than 10 million a year. JD Power projects sales this year of 13 million vehicles. But a continued rise in oil prices could send demand for electric vehicles climbing faster than expected.
David Silver, an auto analyst with Wall Street Strategies, says GM (GM),
It's a stretch, then, to say that carmakers will profit from a fresh oil shock, but at least this time around they have operating momentum and something relevant to sell. Ford and GM shares sell for eight times this year's forecasted earnings, about half the broad market's price.