Dealerships Rethinking SUV Strategy with Gas Prices Predicted to Hit $5 by 2012

When gas prices spiked in 2008, the bottom fell out of the SUV market as sales and trade-in values plummeted. Gasoline prices are on the rise again with some predicting $5 per gallon gas by 2012, causing dealerships to rethink SUV sales plans as they expect a drop in SUV sales and resale values.

Average nationwide gas prices breached $3 per gallon over the last week, the first time prices have done so since October of 2008 according to AAA and the U.S. Department of Energy. Crude oil prices also reached a new high, settling at around $91 per barrel -- the first time prices have remained steadily above $90 per barrel since, you guessed it, October of 2008. These may be the highest gas prices we’ve seen in over two years, but prices are predicted to continue to rise.

“I’m predicting actually the worst outcome over the next two years, which takes us to 2012 with higher gasoline prices,” former president of Shell Oil, John Hofmeister, said in an interview with Platt’s Energy Week.

Hofmeister predicted that with the increasing global demand, particularly in emerging markets such as China, gas prices will hit $5 per gallon by 2012. Other analysts however, feel 2012 is a bit premature for $5 per gallon gas, but that the U.S. will reach that mark before the end of the decade.

“That wolf is out there and it’s going to be at the door. I agree with him [Hofmeister] that we’ll see those numbers at some point this decade, but not yet,” Tom Kloza, chief oil analyst with Oil Price Information Service, told CNN. “The demand is still sluggish enough in some of the mature economies.”

These rising gas prices have caused dealerships to rethink their SUV sales strategies. The days where dealers could go to an auction, stock up on SUVs and simply hold on to them for 40 to 60 days with the assurance they’d sell at a profit are gone. That’s not to say SUV sales have cooled off completely, as Americans aren’t typically downsizing from an Expedition to a Fiesta, but to a smaller SUV such as an Escape or Edge.

“The American consumer still generally wants to have a vehicle that offers a lot of utility,” Alec Gutierrez, lead analyst for vehicle evaluation at Kelley Blue Book, told Automotive News, “but at the same time they are conscious of the fuel economy the vehicle offers and what they are going to pay at the end of the month.”

With this information in mind, dealers are stocking more cautiously tending to keep larger stocks of small SUVs rather than large SUVs. Most say they’re stocking vehicles with the idea that sales could go either way -- hoping for the best, but preparing themselves for anything.

Looking for a low gas price around you? Check out our gas price widget and you could save big on your next fill-up.

Source: Automotive News (Subscription required), CNN

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