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Tags: gas | prices | drop | guzzlers | sales

Lower Pump Prices Boost Sales of Gas Guzzlers

By    |   Monday, 29 December 2014 08:01 PM EST

The drop in oil prices that's beaten down the cost of gas at the pump is a "double-edged sword," experts say: great for gas-guzzling auto owners and gruesome for government policies.

A nearly 44 percent drop in oil prices since June has triggered a gas-price slide to around $2.40 a gallon, and reignited the American love affair with big cars and trucks, with sport-utility vehicles and trucks chalking up 52 percent of auto sales in October – up from 49 percent in October 2013 and 44 percent in October 2008, The Wall Street Journal reports.

"The fall in gasoline prices is something of a double-edged sword," Steven Rattner, a Wall Street financier who helped engineer the Obama administration's restructuring of the auto industry in 2009, told The Journal.

"It's great for consumers, which is the most important piece. But it also encourages sales of SUVs and other gas guzzlers, which makes increasing fuel economy harder."

Government policies —  from requirements that cars and trucks be more fuel-efficient to federal spending to boost sales of electric vehicles and intercity passenger rail —  have been predicated on the belief that expensive gasoline would push Americans toward alternatives, The Journal notes.

Even though many economists expect oil prices to rebound after remaining low through 2015, The Journal reports, the auto industry is worried.

Average fuel economy held flat in October and November, despite the rollout of model-year 2015 vehicles that average higher mileage than prior model years, Michael Sivak, of the University of Michigan's Transportation Research Institute, told The Journal.

"Vehicle buyers are very sensitive to the changes in the price of gas," Sivak said. "When the price of gas goes down, so does their interest in fuel-efficient vehicles. This is especially the case if the change in the price of gas is rapid, as was the case this fall."

Lower gas prices and the big-car-buying binge will be tough on the auto industry's mandate to meet new fuel-economy standards; they face government fines if they don't, The Journal reports.

"The national program measuring fuel economy isn't based on what we produce but on what consumers choose to buy," Wade Newton, spokesman for the Alliance of Automobile Manufacturers, the industry’s main lobbying group, told The Journal.

"It’s true that low energy prices offer good news for our customers, but at the same time it makes the steep climb to fuel economy compliance even more challenging."

Sluggish electric car sales aren't helping, with sales falling far short of President Barack Obama's first-term goal of 1 million battery-powered cars on the road by 2015, The Journal notes.

Overall sales of electric cars through November 2014 are down by about 20,400 cars, or 3.7 percent, compared with the same period last year, The Journal reports.

"If gasoline and diesel prices are lower, there is going to be less consumer appetite for alternatives," Michael Levi, a senior fellow at the Council on Foreign Relations, told The Journal.

But at least one Massachusetts official isn't concerned, and California has forged ahead.

"Because we're driven by global prices of oil, it's a very volatile market," David Cash, commissioner of the Massachusetts Department of Environmental Protection, told The Journal. "With electric cars, the prices are much less volatile. I think that's what consumers are going to look toward."

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The drop in oil prices that's beaten down the cost of gas at the pump is a double-edged sword, experts say: great for gas-guzzling auto owners and gruesome for government policies.
gas, prices, drop, guzzlers, sales
Monday, 29 December 2014 08:01 PM
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