Automaker Market Adapting to Soaring Fuel Costs

The demand for small and fuel-efficient cars have been trending higher in concert with the surging oil prices, which recently traded at just over $135.00 per barrel on May 22. Oil prices are impacting the way consumers think about spending. With the average price of gas at $3.93 per gallon across the U.S. and with it being an upward trend, there is an impact on driving and what cars are in demand.

Now it costs me nearly $100.00 to fill up my SUV and, trust me, it does not last long. I see Hummers parked in driveways replaced by smaller cars.

With pundits being bullish on oil as we are and predicting oil to reach $150.00 per barrel by 2010 — although, based on the current speculative trend, it could be sooner, as it is only 11% higher from the recent high — drivers will need to make choices. Japanese automakers have realized this and have been making small fuel- efficient cars and SUVs for years. Unfortunately it has been catch- up for U.S. automakers, which had made tons of money on SUVs, but are now struggling to sell them.

The positive is that U.S. automakers are dealing with the new environment of high gasoline prices and adapting. General Motors Corporation (NYSE/GM) announced on Tuesday that it would shut down four truck and SUV plants in the U.S., Canada, and Mexico, blaming the high gasoline prices on demand. In fact, there is speculation that the Hummer may soon be axed from the line-up. Not surprising given that demand has plummeted for these gas- guzzling monsters.

GM will produce smaller cars and a Chevy Volt electric car in Detroit. Makes sense in my view, as gasoline prices are sure to remain high and drivers will have little choice to change their driving habits and preferences. Plus, it is good for the environment.