Small car, hybrid sales taking a long drive off a short pier

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Cheaper labor and lower overall production costs are driving production outside the U.S.

Cheaper labor and lower overall production costs are driving production outside the U.S.

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The short-sightedness of the car-buying public is breathtaking. It was just months ago that fears over $4 gas prices had people scurrying about, dumping loaded SUVs for a fraction of their purchase price and replacing them with smaller, more efficient vehicles. But today, with fuel well under $2 per gallon in most places, Americans are returning to their big-car ways.

Hybrids have taken it on the chin as well, even leading small cars back into oblivion. Sales of the Toyota Prius are off 30.8% in February when compared to 2007 figures, and hybrids were down 10% across the industry throughout 2008, despite record demand in the summer, reports The Detroit News. The cost of buying the technology makes owning one only marginally cheaper than owning a larger, less efficient car - and even then only when fuel prices are high.

With stricter CAFE regulations looming in the background and a weak economy in the fore, carmakers are not precisely happy with the reversal of tastes among those that are still buying cars either.

The backlog in small cars like Toyota's Yaris, which has a 175-day supply in the U.S., and the Dodge Caliber, with 205 days worth of inventory on hand, threatens to put the assembly lines on hold indefinitely. Chevrolet's Aveo (pictured) is even worse off, with 427 days of overstock - enough to sell until May 24, 2010 even if the factory stopped making them today, reports The Wall Street Journal.

So what happens when the carmakers readjust yet again to this fluctuation in consumer preference only to have the price of fuel skyrocket along with demand for small cars and hybrids? Can the industry withstand another such setback?

There are those among the major auto companies that think fuel prices were only the catalyst in the reaction, and that other forces, including political and moral influences, will keep the ball rolling toward a smaller, more efficient American fleet. With the government backing the industry's play, President Obama's call for 1 million plug-in electrics by 2015 and a popular culture that tends toward demonization of what is perceived as anti-environmental action, they may be right.

On the other side of the issue, there are people like Kelley Blue Book's Jack Nerad, who told the Pittsburgh Post-Gazette, "I think what you hear out of the government these days is almost antithetical to what you hear in the marketplace, at least in the short term."

So will the short-term dissonance in consumer demand and government-mandated supply resolve in favor of the carmakers? Or will the consumers continue to snatch up SUVs, pickup trucks and larger sedans until they are forced to once again dump them on the used market only to seek hybrids and smaller cars - perhaps to find them unavailable? Only time will tell, but it's a game being played with millions of jobs in the balance.
 
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