(February 20, 2015) SOUTHFIELD, Mich. — Low oil prices will contribute to upside potential for the U.S. automotive market in the near term, according to a recent report from IHS Automotive. Fueled by reduced prices at the gas pump, U.S. consumer confidence is expected to continue to rise, resulting in a potential shift to larger vehicles in the U.S. and Canada as these vehicles will be more affordable to own and the value of fuel economy becomes less important to consumers.

From a global perspective, IHS analysts estimate that cumulative global sales could be 5 to 7 million units higher over the period (2014 through 2021) as a result of lower oil prices.

The largest beneficiaries will be the U.S. market, based on improved consumer confidence; and developing markets such as India and the ASEAN region where lower ownership costs will bring new buyers.

To balance the shift in consumer preferences, IHS Automotive research indicates that U.S. vehicle manufacturers are ramping up production plans for larger light trucks — including SUVs and pickups — at the expense of the smaller B- and C-segment vehicles.

In other markets around the world, OEM responses are consistent with each other, but significantly different than those in the U.S. market. IHS Automotive expects that there will be little to no change in vehicle preference or production changes due to the greater insulation of pump prices from oil costs based on taxes and/or subsidies. The impact in these markets is significantly reduced by government incentives and the need to meet regulations.

The impact on powertrain technologies is expected to mirror the market response. In Japan, China and Europe, little change is expected in the near term. OEMs are continuing to follow regulatory developments, and they will need to offer increasingly fuel efficient fleets regardless of fuel price and market preference.

In the U.S., however, there will be a greater need to improve the average fuel efficiency of new vehicles due to the expected up-segment market shift. Based on this, IHS Automotive expects an increase in market share for technologies already in the pipeline.

“The unexpected decline in fuel price has been too fast and is expected to be too short for any major changes in investment strategy and technology rollout timing,” said Phil Gott, senior director, long-range planning at IHS Automotive. “These changes will impact short-term production plans in locations around the world, and at first glance, may be counterintuitive.”

As an example, one OEM in Japan has already cut back domestic production levels for some of its most fuel efficient models. At the same time, U.S. production plans for the hybrid share of a larger sedan have been raised. Such tactics are needed because while fuel prices are expected to return to higher levels by the time 2025 requirements must be met, a shortfall in meeting the standards necessary in the interim years will cost an OEM important credits that they may be counting on for 2025.

As a result, IHS Automotive expects greater penetration of alternative powertrains, primarily stop-start and hybrid, as well as downsized and boosted gasoline engines in the next several years.

IHS Automotive analysts do not anticipate any impact on diesel demand as a result of the changing oil prices.

“At this time, we do not expect diesel demand to be impacted by low oil prices,” Gott said. “The direction for diesel prices in Europe — the largest light duty diesel market — is similar to gasoline and the attractiveness of diesel vehicles is relatively unchanged.”

Also, given government regulations and consumer sentiment for diesel in China and Japan, IHS does not expect much fluctuation in those markets either. For the U.S., diesel prices are declining, but still remain higher than gasoline. It’s anticipated that diesel will remain attractive for those segments that need benefits of high torque and long cruising range.