LONDON: Oil prices in the United States have a complicated impact on new car purchases and fuel economy, depending on the magnitude and predicted duration of price increases. Consumers have opted to buy more smaller, lighter, and more fuel-efficient vehicles and trucks during periods of high and growing oil costs, lowering gasoline consumption growth compared to the prior trend.
Consumers have opted for larger, heavier, more powerful, and less fuel-efficient automobiles during periods of low and decreasing costs, increasing gasoline consumption relative to the previous pattern.
The full impact of price changes on fuel use is frequently spread out across several years and across numerous economic cycles, making attribution and correlation problematic.
However, because full-electric and hybrid vehicles have emerged as a viable alternative to gasoline-fueled cars and light trucks, increasing prices may have a considerably larger and faster impact on gasoline usage in the future.
According to the US Environmental Protection Agency, gasoline-hybrid, full-electric, and other alternative-powered cars accounted for 11% of all new vehicles produced in 2020, up from 3% in 2015. (EPA).
As consumers try to cut their fuel expenditures and regulators push for a faster transition away from gasoline-fueled powertrains, high and rising prices are likely to boost the adoption of hybrid and electric vehicles.
If oil prices rise again, as they did between 2005 and 2014, the United States is likely to experience a quick and irreversible drop in consumption.
ECONOMY CHOICESVehicle fuel economy is the consequence of decisions made by regulators (who set minimum legal standards), motor manufacturers (who decide on model range development, production, and marketing within the regulatory envelop), and consumers (who make choices about which models to purchase within available ranges).
Consumers have exhibited a strong desire for larger, heavier, and more powerful vehicles during the last four decades, with a long-term trend toward more truck-based platforms rather than car-based platforms.
Between 1980 and 2020, the share of cars in new vehicles decreased from 84% to 43%, while the share of light trucks increased from 16% to 57% (“Automotive trends report,” EPA, January 2021).
(https://tmsnrt.rs/3jwG48e) During the same time period, the average weight of new automobiles climbed by 949 pounds (29%) and the average engine power increased by 143 horsepower (138%).
Because the revenues are bigger, automakers have tended to prefer building, promoting, and selling larger, heavier, more powerful vehicles and trucks over cars.
Within this long-term tendency, however, periods of high and rising oil costs have momentarily altered the balance away from heavier, more powerful vehicles and toward more fuel-efficient vehicles, with both short- and long-term consequences.
IMPACT OF OIL PRICES
High and growing fuel prices drive improved fuel efficiency in two ways.
First, when prices are high, customers choose smaller, lighter, and more fuel-efficient automobiles from existing models. This effect is primarily transitory, and if prices fall again, it will be swiftly reversed. Second, high prices incentivize regulators to tighten future range-economy criteria. This effect is more long-term, lasting several years, and is less likely to reverse if prices fall again. Regulators, in contrast to consumers and automakers, favor higher fuel efficiency for economic, national security, and environmental reasons. However, their willingness to press for tighter fuel economy standards in the face of consumer opposition and corporate lobbying has mostly been driven by price. High and growing prices encourage regulators to tighten fuel economy rules, as well as customers and manufacturers to accept them. AN EXTREMELY EXPENSIVE DECADE Except for a brief period following the financial crisis in 2008/09, the influence of high and rising oil prices on fuel economy was most visible between 2004 and 2014, when prices were well above long-term norms. Between 2005 and 2014, the median real price of Brent rose to US$105 per barrel, up from US$40 between 2000 and 2004, and US$61 between 2015 and 2021. The federal government responded by tightening fuel efficiency standards multiple times, while consumers prioritized fuel economy. Between 2005 and 2014, there was a trend away from trucks and toward automobiles; vehicle weight, which had been rising, remained fairly steady; and engine power increased slightly more slowly than before or after. As a result, vehicle fuel economy grew at a compound annual rate of 2.25 percent between 2004 and 2014, after decreasing 0.55 percent per year from 1994 to 2004 during the preceding ten low-priced years. According to the US Energy Information Administration (“Petroleum supply monthly,” EIA, June 2021), US gasoline consumption peaked in 2007 and did not reach that level again until 2016. DELAYED EFFECTSOil price changes have a limited influence on whole-fleet fuel economy and gasoline consumption in the short term. New fuel-economy requirements take years to write and implement, new vehicles make only a small percentage of the total fleet, and older vehicles are gradually decommissioned (less than 10per cent of the fleet turns over each year). However, as new requirements take effect and apply to a larger portion of the fleet, the impact of higher prices on fuel economy and gasoline consumption grows. High pricing had a delayed effect between 2005 and 2014, which is still enhancing fuel economy and slowing gasoline consumption increase now. If oil prices rise again in the coming years, authorities, manufacturers, and consumers will likely shift to hybrid and all-electric vehicles much more quickly, resulting in a permanent reduction in oil usage. Columns that are related: – Consumers will retaliate if oil costs rise (Reuters, June 30) – Oil prices rise despite lower-than-average usage (Reuters, June 25) – The pandemic’s patchy recovery in global passenger aviation (Reuters, June 21) – Rising oil prices indicate a need for increased production (Reuters, June 16) (Mark Potter edited the piece.)/n
