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Fuel prices are rising again just as automakers pull back on sedans

Fuel prices are hitting a three-year high just as many automakers continue to shift their production lineups further in favor of crossovers and truck-based vehicles.

Ford’s recent announcement that it would only make two conventional passenger car models for the U.S. market has left some wondering if it will hurt The Blue Oval if fuel prices spike or if Obama-era fuel economy regulations stay in place.

Demand for sport-utility vehicles is expected to only grow. Auto industry forecaster LMC Automotive estimates SUVs, including crossovers, will be about 50 percent of all vehicle sales by 2022. Back in 2008, when gas prices were at a record high around $4.00 per gallon, sales were half that.

But there are a few things to keep in mind with respect to this shift.

First, many of the vehicles automakers are betting on, such as crossovers and subcompact SUVs, are often based on lightweight car platforms, rather than the traditional truck platforms.

In some sense, they are a new kind of passenger car that departs from the “3-box” format of sedan, which segments a car into an engine, a cabin, and a trunk.

“What Ford is really talking about modernizing the definition of the car,” she said. “All Ford is doing is taking that car platform and putting different shapes on them.”

Ford was bold in announcing they would do this, but they are hardly the first to make this transition. Others, such as Toyota, BMW, and Buick have been more quietly shifting for awhile now.

These vehicles have partially, but not completely, narrowed the gap in fuel economy with their sedan counterparts.

For example, the Ford EcoSport subcompact SUV and the subcompact Fiesta sedan both get an EPA-rated 27 miles per gallon in the city, but on the highway the EcoSport only gets 29 miles per gallon to the Fiesta’s 35 mpg.

Of course, there has also been a remarkable shift of interest toward pickups and large SUVs, helped in no small part by gas prices.

The average fuel economy for full-size pickup trucks in 2008 was 15.5 miles per gallon, and the cost of regular fuel for a full year for this segment at that time was $2,808. In 2018, full-size pickup fuel economy climbed to 18.2 mpg, but the full year cost of fuel for the segment is only expected to be $1,936 — a nearly $1,000 difference.

That said automakers have poured effort into designing more efficient vehicles to weather spikes in gas prices and stricter emissions controls. And they have made some impressive strides in building less fuel-hungry engines, lighter vehicles, and entirely new power trains. Those innovations are seeping into the larger vehicle segments.

Full-size trucks, for example, can now be found equipped with 6-cylinder engines that perform as well as the 8-cylinder engines that used to be standard on those vehicles, and get significantly better gas mileage.

For example, the base model Ford F-150, which has a V6 engine, gets about 19 miles per gallon in the city and 25 mpg on the highway.

Transmissions have more gears, which means the engine does not have to work as hard to transition from one gear to another — in much the same way that it is easier to ride a bicycle with 21 speeds than it is to ride one with only 3 speeds.

There are also “start-stop” features on cars that shut down the engine when the vehicle is stopped, and cylinder deactivation that shuts down some of the cylinders in the engine when they aren’t needed — the way someone might only use one burner on a six-burner stove. GM uses this across its line, including in SUVs such as the Cadillac XT4.

Jeep added a “mild hybrid” system to the 4-cylinder engine in the 2018 model year for the gas-guzzling Wrangler, Jeep’s marquee off-road vehicle.

This includes an automatic start-stop function, regenerative braking and other tech. Essentially the engine shuts off when the vehicle is stopped or coasting, and can collect energy back from the brakes.

These types of improvements have led to some sometimes small but also considerable improvements in fuel economy, in notoriously inefficient vehicles. Automakers will look at making changes to a vehicle that yield only a few thousandths of a mile-per-gallon in fuel economy, including shaving the slightest bit of weight by changing a few components, using lighter materials, or making a design ever so slightly more aerodynamic, said Carla Bailo, president and CEO of the Center for Automotive Research.

“They really go through everything,” she said, and they add up as many little changes as they can to squeeze out an additional mile per gallon.

The problem is that it is getting tougher and tougher to find ways to keep improving.

“The challenge is that all that low-hanging fruit, all those opportunities for improvement in the marketplace, have been realized already,” Lindland said.

And every year, vehicles grow heavier and heavier, due to the ever-increasing number of safety features and other amenities, such as infotainment systems, customers are increasingly demanding in cars, Bailo said.

To keep raising the bar, and certainly to achieve the sort of fuel efficiency current federal fuel economy rules require automakers to meet by 2025 — 54.5 mpg — electrification appears to be the best option on the table.

And automakers are already talking about electrifying much of their product portfolios.

Ford is among them. The company is going “all-in” on electrification, said president of global markets Jim Farley earlier this year. That includes the F-150.

There is expected to be a hybrid Jeep Wrangler in production by 2020.

In some ways, larger trucks might be the best platform for hybrids, which have a tiny slice of the total car market. At the end of 2017, hybrids and electric vehicles combined comprised only about 3 percent of all auto sales, Bailo said.

For one thing, SUVs and trucks often have higher ground clearance than sedans, meaning there is greater distance between the frame and the ground.

“If you are going to put a battery pack in a vehicle, an SUV makes much more sense than a passenger vehicle, because you have that higher ground clearance. You can fit a battery on the bottom of a vehicle rather than take up space elsewhere,” said Jeff Schuster, who is senior vice president of forecasting at LMC Automotive.

Oil prices are something to watch, Bailo said. She thinks consumers will start to grow anxious if and when prices at the pump start to climb above $4.00.

For now, though customers see no need to push toward more fuel efficient vehicles.

“There is really no demand for more fuel efficiency,” Lindland said. “Consumers are very happy with the fuel efficiency they are currently enjoying.”

Source: Tech CNBC
Fuel prices are rising again just as automakers pull back on sedans

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