Published in Automotive

Video: How High is Too High?

 

As of this morning, gas prices in the U.S. were at about $3.80 a gallon according to gasbuddy.com. But what’s the tipping point for American consumers? At what price would they drive less or think of getting a more fuel efficient vehicle? Based on this month’s Maritz industry study release of about 45,000 U.S. consumers, we find the following:

Current Fuel Price – August 29, 2012 $ 3.80
What’s an expensive price for gas? $ 3.95
At what price would you consider…
Driving less? $ 4.50
Consider a more fuel-efficient vehicle $ 4.86
Obtain a more fuel-efficient vehicle ASAP $ 5.46

 

It looks like there’s still a ways to go before that tipping point is reached – about $0.70 worth before Americans start considering driving less.

So what? On the whole, there still doesn’t seem to be a huge degree of urgency to change driving behaviour.

But how does this jibe with the fact that even our own data, which is the largest auto study in the U.S., shows that fuel economy is the #1 purchase reason right now. How do we reconcile an unwillingness to change driving behavior until gas hits record levels with fuel economy being the main reason to buy a new car? We need to dig a little deeper into the numbers to understand what’s happening here.

If you break out purchase reasons by segment, you see that fuel economy is the most important purchase reason in only a few segments, most notably in sub-compact, compact, and intermediate. But because of the overall size of these segments, they tend to carry the day when it comes to looking at the overall market situation and fuel economy comes out on top. For other segments, fuel economy is further down the list and other purchase reasons take on great importance. Hence, when fuel prices go up, these other segments tend not to care as much.

Fuel costs are only one component of what it costs to run a car. Insurance, operating costs, and especially depreciation enter into the equation, so even though fuel costs may go up, it may not play as large a roll in determining if somebody is going to drive fewer miles.

There’s a practical reason for consumers not to drive less. What’s the alternative? You either buy a more fuel efficient car or you take the bus, which to many is not a particularly attractive alternative. Ever wait for a bus on a cold January day in Toledo? Driving a car, regardless of fuel cost, starts to look pretty good.

The problem, especially for whoever is entering the White House this fall, is that gas prices are very public. Consumers are reminded of them everytime they fill up and they tend to blame those at the highest level for failing to provide inexpensive fuel. This week, the Obama administration finalized CAFE regulations that will force automakers to nearly double the average gas mileage of all new cars and trucks they sell by 2025.

Even though some have concerns about what this might do to new car prices, ultimately it would seem this will be beneficial for consumers. As the price per gallon approaches the tipping point, they can take some solace in knowing that more miles can be extracted per tank and that can’t be a bad thing.