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Sergio Marchionne, CEO of Chrysler Group LLC and Fiat, poses for a photo at the grand opening of Maranello Fiat in Vaughan, Ont. (Brett Gundlock/Brett Gundlock for The Globe and Mail)
Sergio Marchionne, CEO of Chrysler Group LLC and Fiat, poses for a photo at the grand opening of Maranello Fiat in Vaughan, Ont. (Brett Gundlock/Brett Gundlock for The Globe and Mail)

Gas price rise fuels strong car sales Add to ...

A funny thing is happening in the auto industry: Rising gas prices are helping to fuel what could be the biggest annual sales increase in almost three decades.

With the average age of cars in U.S. driveways at more than 11 years and gas prices surging close to record high levels, Americans are seeking improved fuel economy. And they’re getting it by buying new cars, a development that has given the comeback from the 2008-09 crisis a big boost.

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New vehicles are as much as 30 per cent more fuel efficient than those 11-year-old cars and trucks, so drivers don’t need to downsize to smaller vehicles in order to cut their gas consumption.

As a result, new sales are surging in March and analysts are scurrying to upgrade their forecasts for 2012 sales and production, with one saying U.S. deliveries could soar by 15 per cent this year. That would be the best annual improvement in sales since 1984.

One company that’s benefitting is Chrysler Group LLC.

Chrysler’s U.S. sales will be considerably higher this month than they were a year earlier and its Fiat brand will post record sales in Canada, president Sergio Marchionne said this week.

The auto maker’s overall sales target is 2.4 million this year and sales should come in “incredibly close to the 600,000 mark in the first quarter, which is a good indication of the tempo for the remainder of the year,” Mr. Marchionne told reporters at the opening of Fiat’s new flagship Canadian store in Vaughan, Ont., north of Toronto.

Part of the growth is coming from buyers trading in older vehicles for more fuel-efficient cars and trucks, Reid Bigland, president of Chrysler Canada Inc. and head of U.S. sales for Chrysler, said at the same event.

Rather than downsizing, people are “trading in SUVs for more fuel-efficient SUVs, pickup trucks for more fuel-efficient pickup trucks, because on average if you look at today’s vehicle versus five years ago they’re all up 20 per cent to 30 per cent in fuel economy, regardless of make,” he said. “People are still demanding more fuel efficiency in their vehicles without sacrificing space and functionality.”

The average price of a gallon of gasoline in the United States has risen to $3.90 (U.S.) this week, not far from the record high of $4.11 hit in 2008, which was a key reason for massive losses at the Detroit auto makers even before the liquidity crisis and recession that began later that year.

Adam Jonas, who follows the auto industry for Morgan Stanley in New York, said in a note to clients Tuesday that demand for new fuel-efficient cars is one reason why sales have hit higher-than-expected levels so far this year.

Mr. Jonas raised his full-year U.S. sales forecast to 14.8 million vehicles from a previous forecast of 14 million. Sales of 14.8 million would represent a 15 per cent increase from 2011 levels, the strongest year-over-year bounce since 1984. He also boosted his production outlook to 15.2 million vehicles this year from 13.8 million.

The macroeconomic outlook is favourable, mild weather is a plus and a restoration of production by Japan-based auto makers are other factors underpinning that forecast, he wrote.

Truecar.com, a website that provides information to car buyers, said March sales are shaping up to be the strongest since August, 2007.

“We are looking at a record-breaking month for many manufacturers in March with Hyundai, Nissan and Volkswagen expected to have their highest unit sales ever in the U.S.” Jesse Toprak, vice-president of market intelligence for Truecar, said in a statement.

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