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Automakers see potential in cars with smaller engines, but more amenities

Posted Jul 7th 2008 2:22PM by Michael Fowlkes
Filed under: International markets, Products and services, Consumer experience, Competitive strategy, Ford Motor (F), Oil

With gasoline prices sitting at record highs, and the auto industry struggling to deal with the situation, there is a new shift in the design of cars. Historically, when you bought a smaller engine car, that engine came in a vehicle that had far less in the way of comfort and amenities... well, that is changing.

Think back a few years. You went to your local auto lot to pick up a new car, and your first choice was what size engine you wanted, the heavy duty 8-cylinder, 6, or 4-cylinder car? Suppose you decided the 8-cylinder was for you, can you picture the car that supported this engine? Typically these cars had all the bells and whistles you could imagine: the sunroof, the leather seating, fancy radios, power windows, etc. Basically, the bigger the engine, the better the "packaging" that it came along with.

Now, picture the 4-cylinder car from the past. Not much to picture here. Power windows? Doubtful. Yes, the 4-cylinder cars of the past were typically your bare bones vehicle with few fewer amenities than those coming with the 8-cylinder alternatives. If you were lucky, you would at least get some power steering in the car, but that was not always the case either.

Well, times are changing. And American consumers want those 4-cylinder cars now, but they do not want to give up on all the extra features that they have become accustomed to having. Auto makers are feeling this shift in consumer demand and have started to look at ways to get the smaller engines into more consumer friendly vehicles.

The data does not lie, and if you look at models that have done well in the first half of the year, you will see exactly what we are talking about. Consider the Civic by Honda Motors (NYSE: HMC) and the Fusion by Ford Motor (NYSE: F). Both of these models offer the smaller engines in the decked out vehicles, and not surprisingly, both did very well during the tough first six months of this year. The Civic had sales increase by 17.9%, and the Fusion's sales were up 11.7%.

So, it goes to show that auto buyers are out there. They are looking to buy new cars, but the automakers just have to understand that the typical American has realized that they days of cheap gas may be gone forever. Europe has dealt with high gas prices for years, and yet its auto industry is not suffering... why? Because European carmakers are offering their consumers exactly what they want -- fuel efficient cars that come with all the bells and whistles.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

Tags: autos, consumers, F, Ford, fuel efficiency, FuelEfficiency, gas prices, gasonline, GasPrices, HMC, Honda

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