Kokomo Tribune; Kokomo, Indiana

Business

January 23, 2011

Pain at the pump

Gas prices leave hazy future for U.S. auto industry, experts say

— Gas prices that hovered around $3.15 per gallon last week, with expectations that they will pass $4 this year, could prompt some painstaking changes in the industry that supports Kokomo’s economy.

The upward creeping prices at the pump will likely lead to a boost in consumer demand for more fuel-efficient vehicles. The question is how American automakers will respond, said economist Michael Hicks, the director of Ball State University’s Center for Business and Economic Research.

Delphi Electronics and Safety in 2010 announced its intentions to invest as much as $89.3 million, plus an equal amount from a matching federal grant, to manufacture components for electric vehicle batteries in Kokomo.

And Chrysler Group LLC last year announced more than $1 billion in planned investments in Kokomo, where it will produce transmissions for more fuel efficient vehicles.

The investments have been part of the companies’ ways to keep up with demands for better gas mileage.

The pressure comes on the manufacturers as they push themselves to meet federal Corporate Average Fuel Economy standards. Companies have until 2020 to average 35 miles per gallon among all the vehicles they make, under CAFE.

But when two vehicles that get 15 miles per gallon in the city or fewer rank in the top 10 for highest auto sales in the U.S. for 2010, there is little incentive for companies to invest in smaller vehicles, Hicks said.

In U.S., Bigger Sells Better

The Ford F-150, averaging about 14 miles per gallon in the city, ranked No. 1 in auto sales last year. The Chevrolet Silverado 1500, at about 15 miles to the gallon, was No. 3.

“The F-150, I say every third Hoosier drives one,” Hicks said. “The problem is domestic companies have had less success with small vehicles. At $4 a gallon, we’re not going to see many Escalades, we’re not going to see Ford Explorers, far fewer F-150s.”

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