Low fuel prices, cars that sip gas don't mix

Talk about an awkward position: General Motors, under pressure to be profitable and start selling stock again, is benefiting from relatively cheap gasoline.

But in a few weeks, the Detroit automaker launches the 40-mpg Chevrolet Cruze, then this fall the electric Chevrolet Volt, whose success could hinge on high gas prices.

"That's perverse," said Joseph Phillippi, a longtime industry consultant.

Bob Lutz, who retired from GM this spring, was sounding the alarm at last year's Detroit auto show with warnings about low gas prices, and suggested U.S. consumers need more incentive, such as higher fuel taxes, to drive fuel-efficient cars.

"If gasoline stays cheap, then the American public says, 'I'm not interested in that; I will keep my Tahoe longer.' It puts us in the industry in a position where we are at war with the customer," Lutz said then.

The current average price of regular unleaded gasoline across the nation is $2.76, according to AAA. That's up slightly from $2.67 a year ago, but nowhere near the $4.11 national average in July 2008, the highest recorded.

"Right now, we're anticipating that gas prices should hold fairly steady for the summer and really through the year," Nancy Cain of AAA Michigan said.

Higher-priced vehicles tend to be more profitable. The price of a Tahoe is $47,081 but the average transaction price of a Chevrolet Cobalt is $16,840, according to Edmunds.com, an automotive data company.

Experts say GM and other automakers need to make these fuel-efficient vehicles, in part, to meet new U.S. government fuel-efficiency requirements.

"The cheap gas situation isn't really helping justify these small cars," said Rebecca Lindland, an IHS Automotive industry analyst.

As the economy improves, there's an expectation that gas prices will creep back up as global demand increases. That's the assumption GM has been operating under for years and why it has pushed for a high-quality small car and an electric vehicle program.

Tony Posawatz, Volt vehicle line director, said current gas prices shouldn't affect the Volt because initial volumes are expected to be low as the company rolls out the vehicle first regionally in six states. The nationwide rollout will occur by the end of 2011, he said.

"If gas prices are two bucks a gallon in the beginning of the 2012 calendar year, that will be a challenge for us - no doubt," he said.