Question Of The Day: This Time It's Different?

Derek Kreindler
by Derek Kreindler
question of the day this time it s different

On the news of OPEC’s decision to keep oil production at current levels, there is almost certainly going to be a rout in the price of oil.

As of this writing, Gasoline futures are below the $2 mark, while West Texas Intermediate (the North American crude oil benchmark) is sitting at about $71.50, down from a high of $105 this summer. Gas prices are sure to sink even lower alongside the expected dip in crude.

The big question in my mind is how this will influence consumer behavior in the auto sector. Since the Great Financial Crisis, auto makers have positioned themselves for marked increases in fuel economy, spurred by equal parts consumer demand and government mandates (CAFE and Euro emissions regulations). This has manifested itself in everything from incremental (more efficient powertrains) to extreme (the aluminum F-150).

With gasoline at record highs, the demand for smaller, fuel-efficient cars is acute. But when the price dips, consumers tend to forget about the hard times and gravitate back towards pickups, SUVs and all manner of gas guzzlers.

Or do they?

Over the following months, we’ll be able to track what happens to auto sales and the price of gasoline. Our sales guru Tim Cain will be able to plot the results in one of his trademark charts.

Personally, I suspect that we’ll see more short-term thinking when it comes to vehicle purchases. Sales of SUVs, trucks and larger crossovers will keep rising. Small crossovers will eat into sales of passenger cars, likely stealing market share from compact cars once nameplates like the Chevrolet Trax and Honda HR-V hit the market. The hard times will quickly be forgotten…until the next rise in gas prices and economic contraction. In the mean time, it’s going to be a rough market for hybrids and EVs.

But I’m curious to hear what you have to say. With no formal training in economics or business, all I can do is go with my gut. I’m curious to hear your analysis, whether its rooted in the same methodology as mine, or something more concrete and quantitative.

Join the conversation
3 of 133 comments
  • El scotto El scotto on Nov 28, 2014

    Most folks understand that if they get a Canyonero or Thundebolt-Grease-Slappper; their gas mileage isn't going to be that great. A raise in gas prices will take money out of their pocket. (DUH). As for the Middle East mess, I blame Lord Balfour. It's Friday, I need a whisky & soda please.

  • Jeff S Jeff S on Nov 29, 2014

    @highdesertcat--I watch Nightly Business Report as well and read The Week. I don't see cheap oil lasting indefinitely nor do I see $5 to $6 a gallon gasoline. Cheap oil is more of the Saudi's driving competition out and less demand on a global market with Europe and Asia still in a recession. It is very short sighted to assume that long term oil will continue to go down and then go out and buy a vehicle that is less efficient because of lower oil prices. Your better to buy what you need and like for the long term and keep it unless you can afford a newer vehicle every few years. Unless you are in sales it doesn't make sense to buy a vehicle just for status. Why impress someone unless you have to. No wonder people don't have any savings if they are constantly buying a vehicle based on the price of gas--false economy, false savings.

    • Highdesertcat Highdesertcat on Nov 29, 2014

      Hey Jeff S, I'm afraid my car and truck buying days are coming to a close, and frankly, I have never cared about the price of gasoline because I need it to get around. Always have and always will. I had to buy a few cars for "status" like my wife's 1992 Towncar she needed to show clients real estate properties. Today we're down to the 2015 Sequoia Platinum 4x4 the business bought for my wife, and my 2011 Tundra. I do intend to buy a 2016 Tundra 5.7 4-dr 4X4 but it doesn't have to be in the top trim. We gave my wife's 2012 Grand Cherokee to our 23-yo grand daughter to use, after we sold her 2011 Elantra. And the 2008 Highlander we gave to our 17-yo grand daughter to use, because for her to be seen her mom's Odyssey was just not cool at High School. So I wouldn't say that I, or people like me, always buy for status. Most of the time we buy what we can afford. I do believe that even with lower gas prices, Joe Sixpack and Sally Homemaker will continue to buy what they would have bought even if gas prices remained high. Even during the times when gas prices were high, people still made the F150 and Camry the best sellers in America. That wasn't status. That was buying logic, for them.

  • Tassos And all 3 were ordered by Fisker's mother. Seriously, given Fisker's terrible record of Failure in the past, only an utter loser, (for example, VGhost or Art Vandelay?), looking for a BEV terrible enough to be a proper replacement of his 11 mile range Fiat 500E, would order one of these. (apart from Fisker's mother)
  • Tassos And all 3 of them were ordered by Fisker's mother.Seriously, after Fisker's DISMAL record of UTTER FAILURE in the past, only a GOD DAMNED MORON would order this one.
  • RHD Any truth to the unconfirmed rumor that the new, larger model will be called the bZ6X? We could surmise that with a generous back seat it certainly should be!
  • Damon Thomas Adding to the POSITIVES... It's a pretty fun car to mod
  • GregLocock Two adjacent states in Australia have different attitudes to roadworthy inspections. In NSW they are annual. In Victoria they only occur at change of ownership. As you'd expect this leads to many people in Vic keeping their old car.So if the worrywarts are correct Victoria's roads would be full of beaten up cars and so have a high accident rate compared with NSW. Oh well, the stats don't agree.