Monday, January 12, 2015

Editorial: Cheap Gasoline induces Amnesia in Americans

The Acura MDX is one of the best selling car-based SUVs.
It has been all over the news lately: OPEC's decision not to cut production to raise oil prices has led to the lowest gas prices since 2009. That is a huge deal! As much as any other car loving American, I love the idea of lower gas prices, even though my current care requires no gasoline at all (yes, that was a shameless EV plug). What I do not love, however, is the collective amnesia that my fellow Americans seem to develop whenever gas prices see a dip. The last month of 2014 was yet another record sales month for many automakers, spurred by the increase in demand for SUVs and trucks -- SUVs and trucks that often get terrible fuel economy when compared with more reasonably sized family sedans or smaller, more fuel efficient cars.

The vast majority of Americans are not purchasing new vehicles in cash, which means that there is some kind of leasing or financing involved. That means a likely commitment of at least 24 months minimum, but more likely 60 or 72 months, a financing term which is slowly becoming increasingly available and popular. Even a two year commitment on a new vehicle, especially one that gets a combined fuel economy of around 20 mpg, means spending nearly $3,200 on regular fuel to drive the typical 12,000 miles a year at the current gas prices here in CA. If prices increase back to what they were about a year ago, that is an increase of $1,200 over two years. That is like making one extra car payment each year. The numbers are even larger if the truck or SUV drinks premium instead of regular. And SUVs getting 20 mpg combined tend to be smaller, car-platform based crossovers like the Acura RDX or Audi Q5. Standard size SUVs and trucks average closer to 17 mpg, driving up the annual fuel cost at least another $200+ dollars at current prices and upwards of $300+ if prices swing back up to last year's levels.

Data courtesy of FuelEconomy.gov
Now, in the grand scheme of things, that may not seem like a lot of money, but considering the fact that the average small car is now getting around 25 mpg and the average compact sedan is edging up on 30 mpg, that is a rather dramatic improvement in fuel economy to give up. I can understand that some people want a little more space, but the majority of people's driving is commuting, done solo. That means for five days out of the week, all that extra weight, aerodynamic drag, and the reduced fuel economy that results become a liability. But more importantly, assuming that taking on extra debt in the form of a new car loan during a temporary lull in gas prices is likely to land some people in tough financial situations again in a year or so when gas prices have a high likelihood to come roaring back up.

Consider this a plea, albeit one likely to fall on deaf ears, for cooler heads to prevail. As much as I enjoy seeing people driving new cars, it pains me to think that lessons learned during the last few years of economic downturn have failed to sink in. If we truly want to see gas prices continue to remain at lower levels, we should not be looking for ways to drive up the demand for gasoline, but rather looking at ways to reduce our use of it. Since we cannot control the supply, the least we can do is limit the demand, which should help keep prices lower for all. Plus, if we keep buying guys that get better gas mileage, then manufacturers will work harder to make that a priority in their designs as well.