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By Samuel R. Avro on Jan 26, 2009 with no responses

Lower Gas Prices Spur Purchases of Larger Cars

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With gas prices retreating, American consumers have returned to their old habits of buying large vehicles like the Doge Durango.

Auto executives will need to forecast the direction of fuel prices in order to plot the course of their companies futures.

The recent fall in gas prices is spurring consumers to once again begin purchasing large cars and SUV’s, according to Chrysler President Jim Press.

When gas was selling for above $4 a gallon back in July of last year, customers started becoming more aware of the miles per gallon achieved by the vehicle they were intending to buy which in turn caused growth in the small car market.

But now, with gas prices falling below $2 a gallon nationally, the market for large cars is back once again.

The recent swing “shows the fickleness of the market,” says Press, speaking after a J.D. Power and Associates conference for auto dealers in New Orleans.

While Chrysler decided to phase out the company’s full-size Dodge Durango SUV after gas prices skyrocketed, Press says that the vehicle is currently in the shortest supply among all the vehicles sold by Chrysler.

Hybrid sales plunged 43 percent in December and 50 percent in November, according to the auto Web site edmunds.com. Toyota’s Prius, the top-selling hybrid in the U.S., tumbled 45 percent in December, while sales of Nissan Motor Co.’s Altima hybrid fell a whopping 70 percent.

Chrysler has formed a partnership with the Italian automaker Fiat to begin selling seven new vehicles in the United States. Four of those new vehicles will be sold with the Chrysler brand name.

But according to Mr. Press, even if those vehicles were available today –they plan is for it to be ready in 2 years– it wouldn’t help much, being that consumers are showing that the minute gas prices are at fairly low rates they once again return to their old driving habits.

Americans have always had a propensity for large cars, SUV’s and pickup trucks.

Proof of this quick turnabout can be seen from auto sale figures over the past year. According to Autodata, in May of last year, 56% of the vehicles sold were cars, not trucks. By December, the share of cars sold had fallen to 47%.

The failing auto industry is grappling with what approach to take in their long-term plans. When gas prices were high it was pretty simple for the manufacturers to plot their course, but with the current price swings they know that the market is capable of undergoing a major change at any moment.

Getting their companies back on their feet may prove even harder than imagined for some executives. If they bet too much on consumers wanting smaller cars and fuel prices remain at their current levels, their sales may take a hit in what would rather be a fairly good market had they continued production of over-sized SUV’s and pickup trucks.

Forecasting the direction of fuel prices will be key to the auto manufacturers achieveing success during the economic recession.