A huge number of Americans like the security and convenience of high-riding, spacious pickups and sport-utilities. But with recent blips in gas prices, the question is whether those relationships are strong enough to survive a trauma at the gas pumps or whether consumers will start buying more fuel-efficient vehicles.
The issue is that fuel is not an inconsequential part of the family budget.
“We believe that fuel is a required expenditure on the part of virtually all households. It’s not a discretionary purchase. It’s not something they can cut way back on as a way of saving money,” said Geoff Sundstrom, spokesman for AAA at the organization’s national office in Orlando.
AAA has been tracking gasoline costs since the energy crisis in the 1970s.
“Gasoline and motor oil” expenditures make up 2.9 percent, or roughly $1,055, of the total annual expenditures for the average household, according to the 1999 Consumer Expenditure Survey from the Bureau of Labor Statistics. To put this into perspective, food expenditures at home and away from home account for 13.6 percent (or $5,031) of the average household’s budget, according to the bureau. The average household income before taxes is $43,950. This is based on the same Consumer Expenditure Survey, 1999, Bureau of Labor Statistics.
But since that report, gasoline prices have been going up, forcing families to spend more.
“Over the last two years, gasoline prices spiraled upward then declined modestly to rest at a new plateau that is 20 cents per gallon higher,” said Mark Cooper, the Consumer Federation of America’s director of research and author of the 47-page report, “Ending the Gasoline Price Spiral: Consumer Friendly Policies to Stop the Wild Ride.”
This increase costs households an average of more than $150 per year, according to his report, and it has hit low- and middle-income drivers hardest. Lower and middle-income households (those with income less than $30,000 per year) who have automobiles spend 5 to 10 percent of their income on gasoline.
For them, the 20-cent per gallon increase could take an additional 1 percent of their income, according to the report.
In contrast, upper income households (those with incomes of more than $75,000 per year) devote less than 2 percent of their income to gasoline consumption. For them the increase would be only 0.2 percent, according to the report.
Short-term hikes have little impact
Some analysts, economists and automakers believe that short-term increases in gasoline prices are not likely to affect consumer behavior or their demand for trucks.
An AutoPacific 2000 Future Vehicle Survey, for example, found that sport-utility owners wouldn’t seriously consider buying a car until gas reached $2.85 a gallon and stayed there at least three months.
In September, AAA said the nationwide average price of self-serve regular gasoline was $1.53 per gallon, up from $1.39 per gallon for August.
But there are some indications that consumers are becoming more interested in fuel-efficient vehicles.
Though fuel economy hasn’t ranked in the top five priorities when consumers are shopping for trucks, that is starting to change, said Thad Malesh, director of the alternative power technologies group at J.D. Power and Associates in Troy, Mich.
Malesh said trend data gathered in the last two years shows a 15 percent increase in the number of new vehicle buyers who said they were interested in a more fuel-efficient vehicle. In early 1999, before the most recent two years of gas price spikes, 40 percent of new vehicle buyers–no matter what type of vehicle they bought–said they were interested in a more fuel-efficient vehicle.
That has jumped to 56 percent in early 2001, he said. Several national news polls also have shown consumers want more fuel-efficient vehicles:
– A Harris Poll taken between June 7 and June 17, before a steep decline in U.S. retail gasoline prices, showed that higher gas prices have gotten the attention of the 1,247 drivers who responded.
According to the poll, 79 percent said gasoline price increases would “refocus consumer attention on purchasing vehicles that allow them to travel more miles per gallon of gas” and 62 percent said it would “increase consumer interest in high-mileage hybrid, gas-electric vehicles.”
Among the many people (43 percent of car owners and leasers) who expect to buy a new vehicle in the next two years, almost half (48 percent) believe they will buy “a more fuel-efficient one.”
However, Humphrey Taylor, chairman of The Harris Poll, said: “What consumers say they will do in the future is often a very poor guide to what they actually do. In the mid-1970s, The Harris Poll found that most Americans said they would `stop driving’ if gasoline prices reached a dollar a gallon.”
– A nationwide June 2001 Christian Science Monitor/TIPP (TechnoMetrica Institute of Policy and Politics, a market research firm in New Jersey) poll found that Americans favor nearly 5-to-1 a new law to force manufacturers to increase auto and truck fuel mileage.
– Eighty-nine percent of respondents to a June 2001 Washington Post-ABC News poll said they would require vehicle manufacturers to improve the fuel efficiency of their products. Eighty-one percent strongly favored that statement.
“There is evidence that when the price of gas goes up by 10 percent, people cut back a few percent right away by driving less and buying less gasoline,” said Richard D. Porter, professor emeritus of economics, University of Michigan.
In the long run they buy more fuel-efficient vehicles, vehicles that are smaller or that have smaller, less-powerful engines, he said.
Habits changed in gas crisis
It happened in the 1970s, he said, after gasoline prices went up in 1973 when OPEC started to get active and then in 1979 when the Iran-Iraq war reduced supplies.
“When those prices went up at those two spikes people cut back their gasoline consumption a lot, so people really do react to gasoline prices,” he said. That also was at the beginning of the Japanese small-car invasion.
One reason Japanese small cars sold so well is that people were beginning to think about buying cars that got better fuel efficiency, Porter said.
“They were afraid that the 1973 and ’79 prices would repeat themselves,” he said. Then the price of gasoline went down and consumers started to buy more and more fuel-inefficient vehicles.
Modern cars get better mileage
Some consumers are adjusting to gasoline prices by buying more fuel-efficient vehicles, said Paul Taylor, chief economist at the National Automobile Dealers Association in McLean, Virginia.
In 1997 when gas prices went up 30 percent, about 5 percent of consumers shifted to buying cars with four-cylinder engines to adjust to the higher prices, Taylor said.
Over the last year Taylor said the data shows that people are adjusting by choosing crossover vehicles over sport-utility vehicles, buying small sedans instead of big sedans and picking cars and trucks with 4-cylinder engines and small V-6 engines over V-8s.
These modern V-6s tend to get mileage comparable to 4-cylinder engines of just four or five years ago.
And crossovers, which use lighter-weight, car-based components, get reasonable mileage when adjusted for the fuel penalty of four-wheel-drive, Taylor said.
Crossovers include vehicles such as the Lexus RX300, the Ford Escape, Toyota RAV4, Buick Rendezvous and Subaru Forester.
More options on the way
Consumers who want better fuel economy are going to find more choices in the next few years. One choice will be hybrids. Hybrids, which combine electric motors with conventional gasoline engines, will use less fuel and automakers say they will do it without noticeably affecting performance.
Typically, the electric motor powers the vehicle at low speeds, then the gasoline engine takes over.
The motor also assists when the driver is accelerating.
The only hybrids on the market are the Honda Insight and Toyota Prius, but soon they will be joined by other models as Honda brings out a hybrid Civic next spring, and the domestic automakers start introducing hybrid sport-utility vehicles in 2003.
This could be good news to those consumers concerned about gas prices.
“Fuel prices are one of the top concerns of our members,” AAA’s Sundstrom said. “When that cost rises much more than they are typically accustomed to paying, particularly on the gasoline credit card bill at the end of the month, they really recoil. They really react to that,” he said.
