U.S. automakers betting on higher oil

By Nick Zieminski - Analysis

DETROIT (Reuters) - Oil prices may have fallen back to about $100 a barrel, but few in the auto industry are ready to pop the champagne corks just yet.

The nearly $50 drop in the price of oil may help the beleaguered industry in the short term, but consumer tastes have firmly changed in recent months and the industry has changed with them, executives said this week at the Reuters Autos Summit in Detroit.

A jump in fuel prices this year prompted a sudden shift among consumers, who have largely given up gas-guzzling trucks and SUVs in favor of smaller, more fuel efficient cars.

General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) continues to plan its vehicle line-up and technology investments around the assumption that oil will average between $130 and $160 per barrel over the next five years.

"The reason oil has come off so significantly is because the economy is so weak," GM President and Chief Operating Officer Fritz Henderson told the Summit. "We're still better served planning for higher oil prices."

"It's going to be volatile," he said, calling the recent price swings "astonishing."

Truck demand could pick up in the short term if pump prices begin to reflect the decline in crude oil, Henderson said, and if oil prices decline significantly and consumers shift back to larger vehicles, GM has the capacity to meet that demand.

SMALL IS IN

Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) Chief Executive Alan Mulally said buyers moved "aggressively" into smaller vehicles once gasoline prices reached $3.40 per gallon.

But even before then, Ford decided to push for more fuel-efficient vehicles and alternative fuels because it saw a long-term mismatch between world energy demand and production capacity.

"So even if the fuel prices dropped down in the near term, we think long term they are still going to be relatively higher," Mulally said.

For automakers and their suppliers, a source of frustration is a lack of clear direction on U.S. government energy policy, since vehicles take as long as five years from initial development to the showroom.

"Which vehicle platform do I spend my precious billions on?" said Tim Leuliette, chief executive of parts maker Dura Automotive Systems. "The one for $2 gasoline or the one for $4 gasoline?"

He added that: "While Washington would like to take Detroit to task, Detroit could take Washington to task and say, 'Give me a national oil policy so I know what I'm doing here.'"

CAUTIOUS CONSUMERS  Continued...