As Gas Prices Fall, Fuel Economy Loses Importance to Auto Shoppers

In his first interview after the election, President-elect Barack Obama emphasized the importance of a new energy policy, worrying that when gas prices fall “suddenly we act like it’s not important, and we start, you know filling up our SUVs again.” In October, the average price of a gallon of gasoline fell to $3.11, the lowest price since February and a dollar less than its peak in June. With gas prices continuing to fall, have Americans forgotten the pain of triple-digit gas bills or are they still willing to be seen in a Toyota Yaris?

It looks like the pain of high gas prices has been forgotten. After seeing a brief surge during the late Spring/early Summer, demand for vehicles averaging over 30 mpg has once again fallen below that of vehicles averaging less than 15 mpg. Perhaps more disheartening, the percent of new vehicle shoppers looking at cars subject to the “gas guzzler tax” has been increasing as well (note the gas guzzler tax does not apply to light trucks).

While the leaders of the Detroit 3 have been hanging around the Capitol building asking for some spare change, some have suggested that any bailout be conditioned upon raising the CAFÉ (fuel economy) standards. It is clear, however, that unless gas prices are sufficiently high Americans are not interested in small, fuel-efficient vehicles. If we want to adopt a new energy policy to begin to wean ourselves off fossil fuels and drive people toward fuel efficient vehicles we must increase the gas tax (gradually) to ensure that gas prices stay above $4. The revenues produced can be returned, in part, in the form of tax rebates, but also to repair our ailing infrastructure. Steady gas prices will also benefit the automakers by alleviating the wild swings in demand from SUV’s to small cars and back again. Will higher gas prices be painful? Of course. Are higher gas prices in our long-term interest? Yes. Will the gas tax be increased? I wouldn’t count on it.

Comments

[Tom in Tenn...:]

Let me see if I understand this: "Will higher gas prices be painful? Of course. Are higher gas prices in our long-term interest? Yes."
Typical contemporary wisdom from those who have completely lost contact with reality. Higher gas prices are NOT in our long term interest unless you believe that Americans are so naieve that they would not change to better environmental habits unless squeezed at the pump. That has the same stupid logic in it that says we have to endure an epidemic of smallpox before people will volunteer to be innoculated. The only ones who want to increase gas taxes are those who enjoy managing people through their pocketbooks instead of leading people through their minds....I will let you decide which is a better and more permanent way for a people and government to work together.

2008 Dec 07 11:27 AM

[Rktect:]

I'm amazed to observe traders aren't researching energy more carefully before investing in it. Forget your charts; there is something coming that despite its having been of interest to oil and gas men for forty years is only now been brought into production because there were some technical difficulties involved in getting it in the pipeline.

Clinton signed off on it in 2000 and its likely Obama will go along. Most reports I have seen expect to see full scale production by the US, Korea, India, and Japan with some joint partnerships signed off on by DOE last spring involving XOM, BP, COP, RIG and others in full scale production in early 2009.

There are three earth atmospheres of the stuff lying in easily reachable deposits just off most of the earth's coasts. The biggest danger is that its production might contribute to global warming but oil company researchers say their contributions will be less than what is presently produced naturally.

Allowing peak oil will force people to get over their oil addiction soon and prices will continue higher than we like for another decade until the fossil fuel is all gone, there is the possibility that within less than ten years there will be enough cheap methane hydrate on the market to take up the slack.

www.fossil.energy.gov/.../

"In recent field tests, researchers have demonstrated the capability to predict the location and concentration of methane hydrate deposits using reprocessed conventional 3-D seismic data, and new techniques, including multi-component seismic, are being tested. Modeling of small-volume production tests in the U.S. and Canadian Arctic suggest that commercial production is possible using depressurization and thermal stimulation from conventional wellbores. Large-scale production tests are planned in the Canadian Arctic in the winter of 2008 and in the U.S. Arctic in the following year. "

2008 Dec 07 11:40 AM

[Pacio:]

What Obama said is scary, indeed i am afraid that american people will forget how stupid are the SUVs and continue to consume as before the crisis, how can you change this mindset? No TARP money for any automaker that doesnt commit to change its business model ! Otherwise, the auto industry is not going to survive this way...
Pacio - www.ibankee.com

2008 Dec 07 11:49 AM

[Lazaris:]

Great, the truth is finally coming out. Seeking Alpha has been trashing GM Ford and Chrysler for a long time now for continuing to build big trucks and SUV's. They have continued to build those vehicles because people wanted them! and they still do!
This whole "auto bailout" has been co-opted by the environmentalists who see this as an opportunity to FORCE their agenda on the entire country, and the domestic automakers. This is social engineering at its best! It is analogous to the smoking laws and bans going into effect all over this country. The powers that be have been telling people to quit, but some just won't. So they are harassed, taxed, made to be pariahs and are generally looked down on. But this is still the land of the FREE right? Where we make our own life decisions? But if the decisions that "we" make (smoking, driving a hummer) don't jive with those in power, they will one way or anther, through taxation, or getting restrictive laws passed, force their agenda on the rest of us. The lawmakers and SeekingAlpha seem to think that "they" know what is best for us and the country, and that we are not "educated' enough to make our own decisions.

2008 Dec 07 11:54 AM

[UH2L:]

This phenomenon just proves that people are generally stupid and that CAFE doesn't work. I totally disagree with Lazaris because I think people don't do what's best for them or our country. They are buying these guzzlers and then when gas prices spike up again, they'll complain. To be fair, some of the sales are driven by all the rebates on trucks. For us to become energy independent would require an increase in gas taxes and now that prices have. Making manufacturers produce efficient vehicles doesn't mean people will buy them! The loans for the Detroit 3 may have conditions to make them produce highly efficient vehicles, but the government will have to incentivize the purchase of those vehicles while taxing the purchase of inefficient vehicles. That would be an alternative to an increase in gas taxes.

2008 Dec 07 02:25 PM

[dwebspider:]

I sure hope the people out buying gas guzzlers now realize the drop in fuel prices is temporary. It will go up some at least for the summer and when the world economy gets going again it will probably go higher than earlier this year.

2008 Dec 07 07:20 PM

[Byallmeans:]

Item one on this list is exactly why CAFE is an unmitigated financially for automakers. Until there is Regulated fuel pricing in this country to replace CAFE their is no financial business model for a 40,000 thousand dollar 60 MPG vehicle period. They have to be deeply discounted to sell and anything less than 4.)) dollar a gallon fuel makes them a defunct business model. This is a direct looking view into how US government policy has not only contributed to losses at the domestic automakers but the foreign ones to. Ms Pelosi, When are you and the new Tree hugging Mr Waxman going to wake up and develop the political fortitude to scrap CAFE in favor of regulated fuel pricing. This is exactly why the automakers voth Domestic and Foreign alike have resisted CAFE. The Domestics have been railed for resisting CAFE but in the last round challenging California's new standard Honda, Toyota and Kia were front center and present in the fight.
Ms Pelosi you and your ilk in washington have done no better with E85 infrastructure. The manufacturers stepped up and built the vehicles and the only thing you accompolished was subsidising the farmers into making E85 fuels with no infrastructure plan. Where is your PLAN!!! Stop being hypocritical and admit you have been culpable.

2008 Dec 07 08:20 PM

[Byallmeans:]

I meant Unmitigated Disaster, CAFE is.

2008 Dec 07 08:20 PM

[User 314928:]

"Willing to be seen in a Toyota Yaris"... the day the general American population gets over this bad image of small, efficient cars is the day your energy problems will be greatly improved... Look at Europe, small cars like the Yaris (and even smaller!) are everywhere... I congratulate those who are buying Yaris, Fit, Aveo, and the like in the US, for they are either really frugal, or thinking ahead :)

2008 Dec 07 10:34 PM

[oldskool:]

The wrong conclusions were read into these numbers. The only people buying cars right now are the wealthy and businesses that buy trucks. Therefore a higher percentage of the dismal total vehicle sales are gas guzzler cars and trucks that don't get great mileage either.

But since they brought it up CAFE does not work!!

2008 Dec 07 10:39 PM

[icandoitdon:]

even if you believe that consumers must be pushed into doing the right thing rather than led, why penalize those who are willing to play by the government's rules and buy fuel efficient cars? put teeth in the tax guzzler tax and let consumers drive what they choose.

2008 Dec 08 01:53 AM

[icandoitdon:]

read "gas guzzler" tax instead of "tax guzzler tax"

2008 Dec 08 01:55 AM

[Paul Killinger:]

So gas has gone from $1 to $4 and back to $1.50, and there's still no consensus among us on this issue.

How about this? A rational person would want to use LESS gasoline for no other reason than it would SAVE MONEY. Those who don't, therefore, either don't know how to manage their money, or don't care how much the stuff costs them and EVERYONE ELSE.

I don't like the government setting prices, taxing or rationing any more than anyone else. But, just remember, your FREEDOM STOPS at the point where it IMPEDES MINE or someone else's.

Since there are 300 million of us in this together, we must ALL learn to SHARE the good fortune the Lord has bestowed upon us. We've got to STOP being selfish babies.

If that means driving smaller, more efficient vehicles, so be it. Just be grateful you HAVE ONE, and you can drive it WHEN and WHERE you want.

Now, what's so difficult about that?

2008 Dec 08 08:54 AM

[Paul Killinger:]

And to those of you who castigate CAFE, the only reason it hasn't worked better is because DETROIT lobbied successfully to get SUV's and trucks EXEMPTED. As it turns out, this wasn't such a great idea. It has brought them to the brink of extinction. Ah, but now they don't want to pay the price.

2008 Dec 08 09:08 AM

[Paul Killinger:]

And lest we forget, the perception the Japanese built better cars began during the days where the UAW regularly SABOTAGED vehicles on the assembly line when they weren't happy with their contracts. Now they're crying that their pensions and health bennies are imperiled. Those responsible should be glad they're not facing PRISON sentences instead.

2008 Dec 08 09:18 AM

[da!:]

Great idea, leave it to the smart people or people will do what is right.The 50% morbidly fat Americans who wont put down the cheeseburger or stop smoking not to die will miraculously CHOOSE the wright vehicle. The only thing that ever effectively led to a reduction of any poor behavior in this culture is taxing the crap out of it. Example -smoking. But Im with you boys, we are americans and we must at all costs stay free to be STUPID

2008 Dec 08 11:28 AM

[a. palmer jr.:]

I honestly think that cars like Yaris, Fit, Corolla, etc. do not get the gas mileage they should. A car like Yaris should get 50 mpg. minimum. A 15 year old Geo Metro gets over 55 mpg on the highway, so why don't these? Why can't GM just build the '93 Geo metro again?

2008 Dec 08 11:56 AM

[lefty37:]

The part I cannot figure out is described here.
Before retirement, had 1990 GMC heavy duty. Needed for my work.
Got 17/21 mpg. 2000, Retired, bought smaller diferent brand truck, (to pull my fishing boat). MILEAGE----- 12/16 why?

2008 Dec 09 06:42 AM

[website:]

Obama energy policy, whats is it ,economic cars or ethanol ?

Jan 01 05:32 PM