U.S. Consumers Taking Higher Fuel Prices in Stride – Buying Less Fuel Efficient New Vehicles

Earlier this year, unrest in North Africa and the Middle East had some analysts warning of $5 per gallon gasoline by year’s end. Now, with fuel prices remaining around the $4 per gallon mark in the U.S., consumers are returning to larger, less fuel efficient new cars and trucks.

According to a study commissioned by Reuters, the average fuel economy of new light vehicles sold in the U.S. in May fell to its lowest level since last January. The average fuel economy has increased by only 2 mpg since fuel prices reached this level in 2008.

The March 11 earthquake and tsunami has also contributed to the decline in sales of smaller, more fuel efficient vehicles as many dealers simply don’t have sufficient inventory to meet the demand. According to Edmunds.com, the quake and its aftermath have resulted in 40,000 fewer smaller vehicles on U.S. roads.

Some analysts and industry insiders say U.S. consumer’s complacency may be directly tied to the 2008 spike in fuel prices.  At that time, $4 per gallon gasoline sent consumers into a near panic which lead to the near demise of Chrysler and GM – both of which had few small, fuel efficient vehicles in the model lineups.  Most analysts now agree that the new “freak-out number”, as one industry executive put it, is $5 per gallon.

Although the decline in average fuel efficiency of new vehicles sold in May compared with April is small (about 3/10 mpg), it may indicate a shift in consumer psychology and an overall change in driving habits of U.S. motorists.

Energy Security Analysis Incorporated analyst Sarah Emerson says fuel demand is “inelastic as prices fluctuate so consumers don’t really change their (new car) purchases in the short term.” Emerson says, “People make a decision to buy a car every 10 years. If they believe prices are never going below $3 a gallon, their decision will lean toward more fuel efficient cars but I’m not convinced that these numbers — mileage and prices — track each other.”

Other data supports the idea that Americans are taking higher gas prices in stride. The American Automobile Association predicts that the number of U.S. motorists on the roads this past Memorial Day weekend will equal the number who took driving holidays in 2010 even though average gas prices were $1.07 per gallon higher.

According to the marketing director for GM’s new Sonic subcompact vehicle Margaret Brooks, the 2008 spike in fuel prices “jolted people back to the reality of ‘Fuel prices – I can’t count on them being $2 a gallon forever.’” She attributes the current driving and new vehicle buying habits of U.S. consumers to their ability to prioritize their purchases “instead of super-sizing everything.”

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