As Oil Prices Drop, Will Americans Go Back To Big Vehicles?

By Brendan Moore

09.14.2008

Oil is steadily falling in price (it dipped under $100 USD for the first time in five months last week) and some energy analysts think it may settle in around $100 USD a barrel for the short-term. Some analysts are much more optimistic, saying that they think oil will continue to descend further, until it reaches a plateau of around $70 a barrel.

Either of these scenarios begs these questions: Will Americans go back to pickup trucks and SUVs if gasoline becomes cheap again? If so, will it be in big numbers or a mere trickle? And how long would the lower prices have to be sustained before buyers felt confident enough about the future price of gasoline to then buy something that got 15 mpg that they would then have to fill up, for say, the next 4-5 years?

I talk to consumers about cars and all the issues peripheral to cars every chance I get, whether it’s a one-on-one situation, or in an informal group setting. I stop people in the parking lot at the grocery, or the post office, or at a gas station, introduce myself and my profession, and ask them about what they’re driving, why they’re driving it, etc. When I travel, which I do frequently, I do the same thing so I can get a feel for what people are thinking in different parts of the country.

Specific to the issue of fuel economy and the price of gasoline, I always ask how much weight fuel economy had when they were buying their new vehicle, or, if they’re driving something older, how much weight fuel economy will have when they choose their next vehicle. A couple of questions along these lines, and the people themselves will then generally take the conversation further, providing a fair amount of revealing detail around the logic and reasoning they employ when figuring out how much importance to give to fuel efficiency when making decisions about buying a new vehicle or whether to keep their current vehicle. It is a great way to get very good qualitative data from the average consumer. I always give them my business card in case they want to add anything later, which they sometimes do, whether its by telephone or email.

It seems to me that most Americans have evolved to a fundamentally different perspective than the one they had even a year ago regarding fuel usage in their vehicles.

Not all, mind you – there are still a fair amount of people that say that they will always buy the thirstiest vehicle they can afford, and let me tell you, as a group, they are really looking forward to the possibility of $70 a barrel oil.

But most people will tell you that they now pay a lot more attention to what they spend on filling up their tanks and they just have no desire now to spend any more than they absolutely have to in order just to drive around. The recent spike in gasoline prices forced them to look at their usage of gasoline, and even if the price of gas goes down again, they’re just not that interested in spending anything they don’t have to at the pump. A typical comment is, “If gas goes down again, great. That doesn’t mean I’m going to go out and get something big that sucks a lot of gas. I’m still going to drive something that gets the best fuel mileage available in the size car I need. And if gas keeps going down, fine, it just means I’ll have more money left over to spend on other things in my life. I’m not spending money on gas anymore that I don’t have to. Its stupid.”

You’re reading this and probably thinking to yourself, “okay, sure, I know people like that”. Or, maybe you’re thinking that you’re one of those people. Or, maybe this synchs up with something you read somewhere else recently. But, what’s the point?

The conclusion for me is that this fundamental change in consumer attitudes regarding fuel consumption is pervasive, far-reaching and permanent among most Americans. If you also accept this conclusion, then logically, you have to believe that the pickup truck and SUV segments will continue to shrink until they are merely a small percentage of the overall market.

Let’s connect the dots even further. I do this for a living, so I know all about the trucks and SUVs that foreign automakers sell here, but let’s be honest while we’re connecting the dots here – they do not have the same preponderance of those vehicles as the domestic manufacturers do. That’s why they’re having less problems in this changed market right now. My message is for what’s left of the Big 3.

If you are Chrysler, Ford or GM, the three auto manufacturers with the most trucks and SUVs in their respective lineups, I think it would be unwise for you to view a drop in the price of oil as your cue to stop your current march towards developing and subsequently selling many more small-car models. A drop in the price of oil, and therefore gasoline, may you give you the much-needed breathing room to unload all of that excess inventory of big ‘ol trucks and SUVs. But from what I’m hearing from consumers, it does not alter the fact that most of the American public has pivoted towards small, fuel efficient vehicles regarding their future buying preferences, and will not be returning to gas hogs.

Ever.

My advice is to keep going, guys, keep going towards the goal of world-class, fuel-efficient cars. That is the future that most Americans see in their driveway, and that is the future that you need to pursue.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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6 Comments

  1. I guess they’ll back to bigger vehicules but at the condition then these vehicules will be more efficient with tricks like smaller engines, gear ratios adjusted for fuel performance….errr I mean fuel efficiency. More automatic 6-speed auto or even some 7 or 8-speed auto (or 8-speed manual like the 1979-84 Mitsubishi Mirage/Dodge Colt/Plymouth Champ), aerodynamic retouches and other tricks. Chrysler menaged to tweak 2 more MPG for the Caravan/Town & Country 4.0L http://www.autoblog.com/2008/09/11/chrysler-eeks-out-additional-2-mpg-on-2009-minivans/ and the XFE package for the Cobalt http://www.autosavant.com/2008/04/22/breaking-chevrolet-now-makes-the-most-fuel-efficient-compact-and-midsize-cars/

    and also if more diesels could be available but that’s another story 😉

  2. As a non US type person and therefore as someone who doesn’t have much access to the larger US trucks and SUVs I’m inclined to think that given the right circumstances they are quite a useful vehicle.

    Yet in their current form they are as anachronistic as a horse and cart compared to what they could be.

    There’s a cultural & market driven reason why they are as large as they are and they look the way they do but there’s no reason why they need drivelines derived from trucks that date from the 60’s and 70’s.

    Given that the Euros (including Ford) now produce common rail diesels in commercial vehicles that produce in the order 45 kW per litre and 140Nm/litre whilst at the same time consuming 10 litres/100km……then why can’t these drivelines (or drivelines like them) be adapted to the US class of truck?

    Perhaps Dodge would consider putting the Sprinter driveline in a Ram?

    That way US consumers can have their cake and eat it too.

  3. Everyone is making connecting the rise if fuel costs to the drop in truck and SUV sales. I think this is a little simplistic.

    “Its the economy stupid” Those construction workers who bought all those Pick ups haven’t worked in 8 months.

    Those soccer moms who leased all those Explorers and Tahoes can no longer afford the lease payments because their stock broker husband is out of work.

    That being said, my experience on the sales floor is that people still want the big vehicles and they are mad at the manufacturer for not magically endowing them with the fuel economy of a Honda Civic.

    When Americans buy the vehicle that meets their needs for 95% of their driving instead the 5% when they really need the big vehicle (think the suburban dude who buys the Pick-up to make 3 trips to Home Depot a year but commutes 30 miles back to the city every day), then you can say that the market has changed.

    We see “car share” groups in big cities. When we see “truck share” groups in the ‘burbs, then we know attitudes have changed.

  4. Every time I have chosen gas milage over performance I have regreted it. The base model engine usually only safes you 10-20% in gas anyway.

    1986 F-150 (bought the 302 instead of the 351), I really could have used the 351 for passing on the freeway.

    1999 Ranger (bought the I-4 instead of the V-6) Sticker milage was 28/hwy. I got 20.5 if I was lucky. The V-6 would have been a much better engine, the I-4 lagged passing uphill.

    Ever drive an Expedition with the 4.6? Very underpowered. I’m glad we bought the one with the 5.4.

    Right now I drive a 2001 Mustang with the V-6. It gets 24 mpg in mixed driving. Would it be worth getting 20 mpg and having more power for passing. Probably. It’s only ok now because it has a stickshift. The thing I hate most is the tiny 14 gallon gas tank.

    So my thought is: pick the viehicle that is the right size for your needs, then get the bigest engine the manufacturer can put in it. Then make them give you a stickshift if possible.

  5. You forget the 800-pound gorilla known as 35-mpg CAFE. Even if gas prices were to fall below $3.00 automakers would still be forced to build more fuel-efficient vehicles. For example, even if GM wanted to keep Hummer alive it would have to find ways of getting blood out of a stone.

    Given that the socialists own the agenda for the foreseeable future, that if you ain’t “green” you ain’t trying, I think the damage has been done. We are not going to go back in time.

    I am subtly kicking myself for not getting a 4-cyl Mazda 3 instead of the V6 Mazda 6 I bought. Not that the 3 is super-thrifty, but a, say, 3 mpg improvement combined with a smaller fuel tank would make a significant impact on my bank account. I could trade in my 6, but I *like* this car. Perhaps I’m delusional in hoping gas prices fall below $4.00 (in Hawaii, it hasn’t, probably won’t).

  6. when I mentionned diesel in a earlier post, I taught of this 1965 Impala swapped with a Duramax engine to use biodiesel B100 http://www.autoweek.com/apps/pbcs.dll/article?AID=/20070420/FREE/70418005/1029/THISWEEKSISSUE
    Note then I won’t need 800hp, 350hp will be enough for me and I’ll do more then 24 MPG (around 9.8L/100km, I spotted a link where you can convert from MPG to xL/100km and vice-versa http://opentoronto.com/calculators/converter_mpg_to_l_per_100km.php );), I won’t be surprised to see some older vehicules to made some swaps to diesel engines or natural gas/propane conversion or even going further like the “Lincvolt”, a 1959 Lincoln driven by Canadian singer Neil Young and Jonathan Goodwin who’ll receive a electric engine http://www.lincvolt.com

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