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Drivers ditching gas guzzlers for fuel efficient cars amid high oil prices

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Soaring oil prices are prompting consumers to ditch gas guzzlers for more fuel-efficient models, according the Scotiabank's automotive industry specialist.

Last year's U.S. sales of sport utility vehicles were down by a third from their peak in 2001, Carlos Gomes said from Toronto on Friday, as the price of crude oil retreated to under US$98 a barrel after hitting a record $100.09 a day earlier.

``I think that clearly highlights the shift in vehicle purchasing habits that is occurring, not only in the United States, but also in Canada as well,'' he said.

Gomes said sales of so-called crossover utility vehicles, similar to SUVs but generally lighter and thriftier, have jumped from one million in 2001 to 2.8 million in 2007.

And hybrid vehicles, powered by both gasoline and electric motors, have seen sales go up by 40 to 50 per cent over that time frame, Gomes added.

``They're still a fairly small portion of the market, but definitely we are seeing people shift to more fuel-efficient vehicles.''

Railways and airlines whose businesses rely on diesel and jet fuel are also feeling the pinch. Some have passed on higher costs to customers, while others have held back their fuel costs through futures contracts.

Canadian National Railway Co. (TSX:CNR) calculates its fuel surcharge monthly based on movements in the average price of West Texas Intermediate crude oil. For January the charge is set at 17.37 per cent, said railway spokesman Mark Hallman.

``As part of its fuel management strategy, CN has had in effect for years a fuel surcharge that is designed to recover, over time, increased costs associated with rising fuel prices,'' he said.

``The surcharge moves up when oil prices rise, and declines when oil prices fall,'' Hallman said.

``CN no longer has a fuel hedging program, as the company believes the fuel surcharge is the best means of managing fluctuating diesel fuel costs.''

CN also said last summer it would be buying 65 new fuel-efficient locomotives in addition to 65 already ordered. The new engines are 15 per cent more fuel-efficient than the 145 older ones the railway plans to retire.

The record high price of crude has prompted Air Canada (TSX:AC.B) to increase its transborder fares by two per cent, said spokeswoman Isabelle Arthur.

Fuel costs have been incorporated in the base fare of domestic and transborder flights since 2004. The airline tacks a fuel surcharge onto fares in some international markets, but any changes have to be approved by the Canadian Transportation Agency.

Fuel costs are the airline's largest expense, she noted, and every US$1 per barrel increase in the price of crude costs the country's largest airline C$28 million per year.

``We're just going to keep following and monitoring the fluctuation of oil prices and ensure that we remain competitive in all these markets,'' Arthur said.

Air Canada's fuel hedging program locked in 45 per cent of its fuel requirements in the third quarter ended Sept. 30, and saved $17 million. At the same time, the stronger Canadian dollar trimmed fuel expenses by $46 million.

Fuel coasts are ``a challenge for the entire industry,'' Air Canada CEO Montie Brewer told analysts in November.

WestJet Airlines Ltd. (TSX:WJA), whose business model is focused on competitive pricing, doesn't have a hedging program, said spokeswoman Gillian Bentley.

``We haven't always put an increase on our fares as soon as oil goes up. We do monitor it,'' she said.

``When it becomes unsustainable, that's when we would increase
our base fare.''

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Drivers ditching gas guzzlers for fuel efficient cars amid high oil prices
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