Americans Respond To Rising Gas Prices

As gasoline prices skyrocket Americans are responding by driving less and buying more fuel-efficient cars. AAA Fuel Gauge reports that the national average for a gallon of unleaded gas now stands at $3.741, 9.4 cents higher than a week ago. and 29.1 cents higher than a month ago. Many billions of dollars are being spent on gasoline which will not be spent on something else. Car sales were strong in January, but surged to 15.1 million in February (at a seasonally adjusted annual rate, SAAR).

The New York Times reported on the situation in the oddly named story Auto Sales Pick Up Pace Despite Rising Gas Prices. Despite?

The seasonally adjusted, annualized selling rate for new vehicles, a closely watched indication of the auto industry’s health, climbed to 15.1 million in February. It was the first time the rate reached that level since 2008.

Analysts said it was too early to predict if the February rate was sustainable — March is typically a much stronger month for auto sales and therefore more indicative of long-term trends — but the outlook was bright enough that General Motors, Ford and Chrysler were seeking ways to increase production...

Automakers sold 12.8 million cars and trucks last year, and the last time sales surpassed 14 million was 2007. That same year, General Motors, the Ford Motor Company and Chrysler lost more than $44 billion. The sales gains reported Thursday were achieved without the big discounts that helped many sales booms in the past. And even though many shoppers were drawn to small and less gas-thirsty models, buyers paid an average of $1,943 more for a car than last year, the biggest year-over-year increase in recent memory, according to TrueCar.com.

The price increase was a result of buyers adding more optional features even as they downsized to save money on gas. The options helped offset the lower profit margins for automakers that small cars generate relative to large trucks.

“This is sort of a dream scenario from an automaker’s perspective,” Mr. Toprak said. “They’re selling more cars while spending less money on incentives."

... “Our product portfolio now contains some of the most fuel-efficient vehicles in our company’s history,” Reid Bigland, the head of United States sales for Chrysler, said in a statement. “A few years ago, higher fuel prices were a major threat to our total vehicle sales, whereas today, those higher prices have become far less of an issue.”

Chart from Calculated Risk

As demand for more fuel-efficient cars soars, demand for gasoline is way down year-over-year, no doubt due to higher prices at the pump.

Gasoline demand is up seasonally, but at a significantly lower level than last year. Source EIA.

The story we're hearing is that new car sales (and some good retail sales numbers) are indications of a sharp rebound in the American economy. Given the gasoline demand numbers, it seems to me that the increase in auto sales (SAAR) is a sign of panic and desperation. We might also ask whether these numbers are sustainable, given the economic downturn we will no doubt experience if gasoline prices continue to rise at this pace. Everybody has a magic number. Some say the economy will tank at $4/gallon (national average) while others say we'll hang in there until gas costs $5/gallon.

The magic number is likely somewhere between those two price levels. In so far as global oil demand is weak, and gasoline demand in the U.S. is weak, there is no good reason, based on the supply & demand fundamentals, why gasoline prices should be rising at this exceedingly rapid pace. I recently posted about the global oil situation in Understanding The Current Oil Market,

The greater truth is that expensive gasoline is now and forever a fact of American Life unless there is a long-lasting global depression, regardless of whether these short-term price increases are justified or not. So buying a more fuel efficient car is a good idea for now if you can afford the payments. In the longer run, on decadal time scales, the only viable strategy will be no car at all, not a smaller, more fuel-efficient car. And I don't think plug-ins (PHEVs like the Chevy Volt) are going to save us, at least not anytime soon.

Sales of the Chevrolet Volt, G.M.’s plug-in hybrid car, rebounded in February after publicity surrounding a government investigation of the Volt had caused demand for it to drop. G.M. sold 1,023 Volts in February, up from 603 in January. Volt sales last month were more than double that of its chief rival, the all-electric Nissan Leaf, which sold 478.

I used to wonder why people can't seem to figure all this out. I don't wonder anymore. I'll post a very brief Saturday Oil Report tomorrow, given the fact that I've posted twice this week about liquid fuels. (Three times if you count the Utica Shale, which I don't count and you shouldn't either.)

Have a nice weekend.

Bonus Video — The Cars, Drive

Who's gonna tell you when
It's too late
Who's gonna tell you things
Aren't so great
You can't go on
Thinking nothing's wrong
Who's gonna drive you home tonight?

 

Comments

[John Andersen]

Yes, the way out of this is rearranging life so that you don't need a car.

There are plenty of places in the USA where you can live and make this happen. This is particularly achievable when you are able-bodied, but that's no show-stopper for those who aren't.

For what it's worth, my wife and I have been car-free since June 2011. More than anything else, we've discovered the car-free life has been more relaxing. When we go out for events, eating, walks, etc., they tend to feel more meaningful. We enjoy them more. I don't know what that is other than perhaps events now are bookended by gentle walks to and from them which gives us time to talk and reflect. Perhaps that's what makes them better?

[william mcdonald]

Not to mention the Sunday drive on mass transit.

Very relaxing discussing the issues of the day with the hoi polloi, meant in the greek way.

Those that aren't drunk or stoned that is.

Enjoy.

Me, I will sacrifice and keep on driving.

[Honesty]

But Dave, isn't US oil production is suddenly so robust that America is about to become a leading world oil exporter again?

Sigh. I use a bike on campus, and I'm very fortunate that I don't need to travel long distances for my necessities. I really feel awful for the people who aren't as lucky as I am, especially those who don't have access to public transportation or government aid.

[Bill]

"Tyler Durden" over at Zero Hedge points out that auto sales numbers are factory sales, not dealer sales and that "channel stuffing" is now commonplace - look at the number of vehicles on the dealer's lots that were 'sold' to then but remain 'unsold' to anyone else to get the real picture.

[Alexander Ač]

100 years ago there were few cars. 100 years from now there will be again only few cars. But I doubt people will drive horses again as was the case before THE car revolution.

But then, who really cares what will be 100 years from now? BTW, ocean acidification as now at the fastest rate in the last 300 000 000 years, now study shows...:

cheers,

[John Andersen]

I see walking, cycling, and trains as key transportation methods in 2100; pretty much like it was in 1900.

[Alexander Ač]

John, yeah. Nederlands is a good example - a lot of bikes, but no hills. In Spain (a lot of hill, and hot weather!), there are only few bikes...

Regarding the trains, yes, provided you have infrastructure to support them...

Alex