"Tipping point:" High-cost petrol lets carmakers think small (Feature)

By Chris Cermak Jan 11, 2011, 20:34 GMT

Detroit - Everything rides on the price of petrol. As costs in the United States begin another steady rise, carmakers in North America are once again preparing for a revival of the compact and greener car market in the coming year.

Major manufacturers like Ford, General Motors and Toyota are all gearing up for a battle in the market for smaller vehicles and hybrid-electric cars that save consumers petrol, each unveiling new models at the Detroit auto show this week.

Petrol in the United States has climbed back above 3 dollars per gallon (80 cents per litre), and the industry expects the trend will only continue upwards in 2011.

But unlike during the summer of 2008, when petrol above 4 dollars per gallon provoked a crisis in the US auto industry, carmakers actually seem excited about the prospect of a return to high petrol costs this year, viewing it as a chance to start cashing in on some major and risky investments in greener technologies.

Paul Taylor, chief economist at the National Automobile Dealers Association, listed the higher petrol price as a reason he believes demand for cars will continue to rise in the United States this year.

'While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels,' Taylor said. 'New cars are more fuel efficient.'

Petrol still remains low compared to Europe, where high taxes put the cost of filling up your tank at double or even triple the rate in the United States. But with the US public less used to the cost, the threshold for major changes in behaviour is far lower.

'The 3.50 to 4-dollar range is the tipping point. We've seen that several times, where buyer behaviours and the vehicles that they purchase changed dramatically,' said Robert Carter, head of the US division of Japanese manufacturer Toyota.

'That's why I'm so confident to be standing here with a whole family of Priuses,' Carter told reporters, predicting petrol prices would hold around 3.50 dollars per gallon through much of the year.

Yet Toyota's Prius 'family,' a new set of petrol-electric hybrid cars going on sale mid-year, was not the only collection of greener vehicles to draw a buzz at the Detroit auto show.

Also unlike in 2008, even US carmakers are more prepared to handle the demand for smaller and more fuel-efficient cars, with many determined to break the Prius' stranglehold on the hybrid car market.

General Motors captured the show's Car of the Year award on Monday for its Chevrolet Volt, the first plug-in hybrid made available by a major carmaker. Stephen Girsky, GM's head of corporate strategy, said the US carmaker plans to export the technology to other models.

The Volt can run up to 80 kilometres on a purely electric motor, before a separate petrol engine kicks in. The car has already sold out its initial production roll-out of 10,000 vehicles for this year, despite a high price tag of about 41,000 dollars.

Compare that to just a few years ago, when consumers wanted 'nothing to do with electric cars,' Girsky said.

Ford also released a new line-up of five electric and hybrid cars at the Detroit show, including an all-electric version of its popular Ford Focus, and indicated it was only beginning the process.

'We are electrifying the entire platform,' chief executive Alan Mulally told a gathering of automotive analysts on Tuesday.

The market for non-hybrid compact cars is also heating up. GM this week unveiled the smaller Chevy Sonic, while rival Chrysler for the first time displayed the offerings of its new effective owner, Italy's Fiat, which plans to bring the compact Fiat 500 to the United States in 2012.

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