A recent story on Yahoo Finance entitled, “Don’t Sweat $3.50 a gallon gasoline” had some interesting statistics, although some not so astute conclusions.
“According to the Energy Department, growth of motor gasoline consumption stalled out in the middle of the last decade. From a peak of 3.389 billion barrels in 2007, consumption fell in both 2008 and 2009; 2009′s total of 3.283 billion barrels was 3.1 percent below the 2007 total.Consumption has fallen in part because the much-maligned, SUV-heavy U.S. car fleet is getting more fuel efficient with every passing day. For this development, we can thank (or blame) policy, high gas prices, and innovation. The federal standards for mileage of the U.S. auto fleet have been steadily rising, from 26.6 in 2007 to 29.2 in 2010. Changes in policy and the market have made the fleet more efficient.”
I’d say that thanks would be in order since we are dependent on foreign oil to propel our domestic auto fleet. The rise in popularity of SUV’s in the nineties is in large part what caused the demand to go to the extreme that it went to in 2007. That was a top in consumption. SUV’s are trucks. Trucks get poor gas mileage and at one point were the domain solely of males. When the body styles were modified to suit both genders the amount of trucks on the road doubled and then some. Hence the demand for gasoline skyrocketed. And it seemed that auto manufacturers were in a competition to build the least fuel efficient SUV’s. Suburbans and Yukon’s plumb the depths of fuel inefficiency at 10 mpg each. It’s an issue of weight. For auto manufacturers the incentive to build these vehicles is gone. So I imagine that the 2007 top in consumption will stand for a while, probably forever. But it’s not time to celebrate, for every gallon of demand decrease in the US, China and India make up for in global demand.
The Yahoo article goes on to say, “Remember the 2009 Cash for Clunkers program? The Department of Transportation concluded that “cars purchased under the program are, on average, 19% above the average fuel economy of all new cars currently available, and 59% above the average fuel economy of cars that were traded in.” Yes, sales of pickups and SUVs rebounded smartly in 2010. But today’s larger vehicles are generally more fuel efficient than their predecessors. Meanwhile, every carmaker has ramped up their offerings and sales of fuel-efficient cars, including the Chevrolet Volt, which I drove in November. As these great charts from WSJ.com show, some carmakers that specialize in gas-sippers made big gains in 2010: Nissan and Kia both reported sales gains of 18 percent, while Hyundai saw a 23 percent gain. Hybrid sales, a high-cost path to greater efficiency, are still off their 2007 peak. But there are many more hybrids on the road now. More than 290,000 hybrids were sold in calendar year 2009. In 2010 Toyota alone sold 189,147 hybrids. Meanwhile, the Hummer — like its most famous driver, Arnold Schwarzenegger — has left the public stage.”
Will anyone miss those two? I doubt it.
Here’s more from the article, “Some of the decline is likely due to recession — fewer people driving to work or on vacations, fewer shipments of goods to stores. But it could also be that the high price of gas and many Americans’ straightened circumstances forced some changes in behavior. When gas prices spiked, people began to carpool, or rode their bikes more, or planned errands more efficiently. And some of these behavioral changes may have stuck, even as gas prices fell in 2009.”
Yeah, I’d say that has something to do with it. With unemployment at 10%, there is definitely fewer cars on the road and I’m not even an economist. People’s behavior has certainly changed. It’s no longer possible to use your house as an ATM to live beyond one’s means. But how did our behavior ever become that way in the first place? Well, it’s the result of a credit bubble that finally blew up with the housing bust. It’s disheartening to hear people lament the fact that Americans have to go back to living within their means as we’ve done for generations. It should be welcomed. We waste too much here.
The article makes some final conclusions, “Of course, we shouldn’t downplay entirely the danger of more-expensive oil. A rapid rise to unprecedented levels of, say, $175 or $200 a barrel would be a painful shock to consumers and to businesses, which would swiftly pass on higher costs to their customers. And context is everything. Should the economy begin to falter, higher gas prices would accelerate the downturn. In a stagnant economy, higher gas prices hit consumers instantly right where it hurts — in the wallet. After all, a huge amount of driving is non-discretionary; most of us have to drive to work and shuttle the kids to and from their activities in our cars. Higher gas prices can thus act as a poorly timed regressive tax. So, yes, a new era of expensive fuel will be an unwelcome development, even as things stand now with the economy. But the ability of our transportation and economic system to weather the increases is much greater in 2011 than it was in 2007 and 2008. The gas pains will hurt, but they won’t be debilitating.”
Wow, what can you add to that prognosis? Let’s take a look at it. “Gas pains will hurt but they won’t be as debilitating.” Hmmm. In 2007 unemployment was below 5%, now it’s over 10%. I’m going to go out on a limb here and say that high gas prices would be more debilitating at this juncture. I don’t think that we would need a rise to $175 or $200 either. I think oil going over $100 will do the trick. $175 would be paralysis.