Blog: Dave LeggettTransatlantic product issues, segmentation and oil

Dave Leggett | 4 September 2008

I've come across an interesting posting on GM's corporate blog 'driving conversations'. Carl-Peter Forster very succintly explains GM's position on getting its smaller European cars into the US marketplace. While the 'size-to-value' equation in the US is changing in terms of what US consumers will pay for in a small car, the position for a vehicle manufacturer like GM is a little more complex than some of the headlines might suggest.

One thing I am keeping an eye on is the oil price. With oil threatening to slip under $100 a barrel on the back of a strengthening dollar and expected lower oil demand (those investment bank analysts who grabbed the headlines a few months ago with those '$200 a barrel is just around the corner' headlines are well worth their more than ample remuneration aren't they?) will some of the momentum behind market segmentation shift dissipate? It may take time to feed through to consumers who are still reeling, but what if oil collapses to nearer $50 a barrel next year amid a steadily less gloomy economic backdrop? Will consumers quickly forget the nightmare that was 2008 and move back into bigger vehicles in that scenario?

I am not for one minute forecasting that the oil price will collapse in that manner, but given what has happened in recent weeks, with the 'professionals' apparently getting their forecasts rather wrong, it's perhaps a scenario to consider along with others. To be fair to the pros, they have always said it's a volatile situation in the international oil market, so a further spike can't be ruled out either. The scale of the recent oil price reversal does however suggest that speculators have indeed been a major part of the picture over the past twelve months. And they are getting out of oil, for now anyway.

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