Record Oil Prices Drive Americans to Fuel-Efficient Models, According to Scotia Economics

    TORONTO, June 26 /CNW/ - This year's surge in gasoline prices to a record
four dollars U.S. per gallon has set off a dramatic shift in vehicle buying
patterns in the United States, matching the adjustment that occurred in the
oil shock of the late seventies and early eighties, according to the latest
Global Auto Report released today by Scotia Economics.
    "With Americans abandoning their gas-guzzling SUVs and pickup trucks for
small, more fuel-efficient vehicles, we estimate that the average
fuel-efficiency of this year's fleet has climbed by nearly 20 per cent from
the previous model year, a level matching the improvement that occurred in
1980, when inflation-adjusted oil prices were approaching $100 per barrel,"
said Carlos Gomes, Scotiabank Senior Economist and Auto Industry Specialist.
    The report states that based on sales through May, the fuel efficiency of
vehicles bought in the United States so far this year has increased to an
average of 24.4 miles per gallon (mpg), up from 20.2 mpg in 2007 and an
average of 19.8 mpg during the past decade.
    "With Americans increasingly buying small cars, this segment became the
largest in the United States last month, surpassing both mid-size cars and
pickup trucks. Small cars now account for one-quarter of overall U.S. sales
(cars and light trucks), up from 16 per cent in 2007 and an average of
14 per cent in the 2002 to 2006 period," said Mr. Gomes. "In fact, small cars
and fuel-efficient crossover utility vehicles (CUVs) now account for
42 per cent of the U.S. market, up from 30 per cent in 2006 and double their
share as recently as 2001. In contrast, gas-guzzling pickups and SUVs have
slumped to only 19 per cent of overall U.S. volumes, down from a peak of
36 per cent in 2001."
    The report states that, despite the dramatic change in U.S. vehicle
buying patterns, the fuel efficiency of the current U.S. vehicle fleet is
still more than 40 per cent short of the requirement set out in last year's
landmark U.S. energy bill.
    "Under the energy bill, Corporate Average Fuel Economy (CAFE)
requirements are set to climb to a fleet average fuel-economy target of 35 mpg
by 2020, with substantial improvements by 2015," said Mr. Gomes. "Meeting
these targets requires not only a further significant shift towards smaller
vehicles, but also sizeable new investments by automakers in everything from
hybrids to plug-in gas-electric vehicles.
    "Attracting the investment needed to produce vehicles that meet the new
CAFE standard may pose a challenge for Canada, because most of our capacity is
currently geared towards large vehicles," added Mr. Gomes. "Canada has the
most productive assembly plants in North America, placing four facilities,
Oshawa's number one and number two car plants, the CAMI operation and
Chrysler's car plant in Brampton, among the top ten according to the latest
Harbour Report."
    However, the Global Auto Report also states that, 35 per cent of Canada's
total assembly capacity is currently dedicated to producing large cars,
minivans and pickup trucks, segments that have posted sales slumps of at least
20 per cent in the United States so far this year. In fact, only the
Japanese-owned facilities in Cambridge and Alliston, Ontario are currently
producing small fuel-efficient cars in Canada that meet the new 2020 CAFE
targets. These facilities account for only 20 per cent of Canada's overall
assembly capacity. The challenge is heightened because Canada has become a
high-cost jurisdiction, in response to the strong loonie and union contracts,
making it more difficult to attract the billions of dollars needed to retool
its facilities to meet the new 2020 CAFE standards.
    The report adds that aside from the shift to smaller cars and light
trucks, Americans are also driving less and taking more public transit.
Estimates from the U.S. Energy Department indicate that gasoline demand was
four per cent below a year earlier in mid-June, one of the sharpest fall-offs
since the oil shock of the early eighties. In addition, the American Public
Transportation Association recently indicated that mass transit use increased
3.3 per cent year-over-year in the first quarter, led by a double-digit surge
in light rail. This reflects the slashing of U.S. household purchasing power
by more than US$90 billion through the first quarter due to record gasoline

    Canadian and U.S. Auto Sales

    U.S. passenger vehicle sales posted another double-digit drop last month,
as the shift away from gas-guzzling trucks intensified in May alongside
soaring gasoline prices. Sales of light trucks plunged 27 per cent
year-over-year at the traditional Big Three, reducing their market share to a
record low of 45.3 per cent, and pulling industry volumes down to an
annualized 14.3 million units, well below the 15 million unit average of the
previous four months and the weakest level since the height of the Asian
currency crisis a decade ago. Anecdotal evidence suggests a further sharp
sales deterioration in June.
    "In contrast, vehicle purchases remained strong in Canada last month,
with volumes nearly matching the monthly record for the month of May set last
year," said Mr. Gomes. "We estimate that sales totaled an annualized
1.7 million units, up from a full-year 2007 total of 1.65 million units, but
down slightly from a January to April average of 1.76 million units. Imported
brands continued to lead the way, setting an all-time sales record last month,
as several automakers posted double-digit year-over-year gains."
    Volumes at the traditional Big Three fell nine per cent below a year
earlier, reducing their market share to an all-time low of 47 per cent. Light
trucks accounted for the weakness, falling 14 per cent year-over-year
alongside a 23 per cent slump in pickup truck volumes. Excluding gas-guzzling
SUVs and pickup trucks, the Big Three's volumes held up much better, posting a
modest 4.5 per cent year-over-year decline.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.

For further information:

For further information: Carlos Gomes, Scotia Economics, (416) 866-4735,; Paula Cufre, Scotiabank Public Affairs, (416)

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