The Wilder View

Energy prices: still driving less; filling reserves; auto industry permanently bruised

Old habits die hard, but American drivers may have done it.


The chart illustrates the monthly growth rate (over the year) of vehicle miles driven and national gasoline prices since 1980 through October 2008 (the last available point from the Federal Highway Administration). One thing is quite obvious: Americans are consistently driving less for the first time since 1980, and that’s on an annual basis.

In fact, except for three intermittent months in 2007, the number of vehicle miles driven has been trending downward steadily since December 2006. And since November 2007, drivers have been scaling back for twelve consecutive months.

The trend may be here to stay. According to a Gallup poll, Americans are still driving less, in spite of precipitously declining gas prices:

  • 64% of Americans adjusted their driving behavior in response to surging gas prices in the first half of 2008.
  • Just 12% went back to their previous driving habits with falling gas prices .

The survey gave some interesting results on driving patterns by income level. Consumers are said to be more responsive to changes in prices if the price of the good in question is a large share of income. The lower income consumer would be more responsive to a reduction in gas prices, as the price to fill his/her tank is a larger share of income. The poll finds this to be true:

  • 69% of Americans making < $30k/year drove less when gas prices were surging, while 19% drove more when gas prices fell.
  • 56% of Americans earning > $75k/year drove less when gas prices were surging, while just 8% drove more when gas prices fell.

Have Americans dumped some of their bad habits? Drive less and save more?

Old habits die hard: China and the U.S. stockpile oil China and the U.S. cannot resist the sharp declines in crude oil prices. According to the Wall Street Journal:

As the U.S. seeks to stockpile oil, China has been doing the same, observers say, and is expected to quicken the pace — a development that already may be helping to boost oil prices.

On Friday, the U.S. Department of Energy said that amid low oil prices, it aims to fill the country’s Strategic Petroleum Reserve to capacity this year.

That news followed a rare public statement last week from China’s top energy official, Zhang Guobao, head of the National Energy Administration, in the People’s Daily newspaper that China should take advantage of the falling global energy demand to increase its oil reserves. Mr Zhang said China will “encourage companies to utilize idle storage capacity to increase inventories.”

Oil prices have been rising lately. On Friday, oil closed up 3.9% to $46.34 a barrel on the New York Mercantile Exchange.

Not so good for the hard hit auto industry With consumer behavior changing, the auto industries slash in 2008 is likely to scar. In the wake of an awful December sales report – sales of cars and light trucks fell 36% to 896,124 vehicles -The International Herald Tribune reports:

The industry thrived on cheap credit that allowed automakers to offer low-interest loans and rock-bottom lease payments to encourage consumers to regularly trade in and upgrade their vehicles.

As a result, American consumers went on a sustained buying spree for new cars, trucks and sport utility vehicles.

In 1970, less than 6 percent of American households owned three or more vehicles, according to the Department of Transportation. By 2000, that percentage had jumped to 18. More than 244 million vehicles were in operation in 2006, far outnumbering the 202 million licensed drivers in the country, according to the most recent U.S. statistics.

Auto companies fed the growing appetite for vehicles by broadening their lineups with new products, like car-based crossover vehicles, inexpensive sports cars and a wide array of luxury models.

Companies were forced to redesign their cars more frequently to keep up in the race to put ever-fresher products in dealerships.

“In 1988, the average age of a car in a U.S. showroom was 4.1 years,” said Casesa, referring to the time that lapsed in model redesigns. “Today it is 2.9 years, which is a tremendous difference.”

With annual sales of 16 million as the norm, the industry expanded its infrastructure to meet demand.

RW: The auto industry expanded too quickly, setting itself up for a big fall. Eventually, the economy will emerge from the depths of the recession, and credit conditions will improve; but if Americans are driving less, then demand has taken a permanent tumble. There is a lot of shuffling and consolidation to come in the auto industry.

Originally published at the News N Economics blog and reproduced here with the author’s permission.

One Response to “Energy prices: still driving less; filling reserves; auto industry permanently bruised”

helianaJanuary 14th, 2009 at 1:11 am

I think that it’s time for the auto industry to really look at the basics: the need for transportation, and not all the add-ons that cause the high cost. Whoever can provide the highest value to address the need will certainly be sustainable, look at the consolidation wave around year 2000

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