If I was an automaker trying to predict future trends, I’d be going crazy right now, and the main reason would be gas prices. In the past few months, we’ve seen declines of nearly 40 cents a gallon, yet there’s no guarantee that the trend will continue. The Iranians could block the Straits of Hormuz next week, and then prices would soar.
The reason this matters so much is that consumers are incredibly fickle. Jesse Toprak, vice president of market intelligence at TrueCar.com, is scratching his head. “We continue to see increases in fuel economy among the major manufacturers compared to the previous years, but as we’ve started to see a decline in gas prices in recent weeks, consumer preferences showed a slight shift toward larger, less-fuel-efficient vehicles.”
Arggh. This means that Americans have just been waiting for some downward movement at the pumps to rush back to their SUVs. That creates havoc in efforts to sell fuel-efficient small cars like the Ford at right. New car miles-per-gallon averages have fallen for the last two months. The industry-wide average was 23.2 mpg in May, but 23.3 in April (when gas prices reached an average high of $3.90 a gallon).
Writing in Automotive News, Keith Crain opines, “With the wild swings in the price of gasoline, it must be a nightmare for marketing executives trying to promote a vehicle Americans want to buy. If gasoline had stayed at around $4 or more a gallon, buying habits would definitely change over the long haul.”
So many factors go into oil prices that the only real way to stabilize them would be for the government to set a price floor. In other words, when prices go below a certain point, flexible federal taxes kick in to bump them back to the mean, say $4 a gallon. I like this better than a straight gas tax, which doesn't take into effect the big fluctuations in market prices.
Some conservatives even like the price floor idea. Charles Krauthammer of the Washington Post, for instance. He writes, “At $3 a gallon, Americans just grin and bear it, suck it up, and, while complaining profusely, keep driving like crazy."
"At $4," he writes, "it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down four percent…. Hybrids and compacts are flying off the lots. SUV sales are in free fall.” In effect, the great American love affair with gas guzzlers ends abruptly.
Krauthammer’s solution: “Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits and thus hugely reduce U.S. demand — and bring down world crude oil prices.”
Krauthammer wrote this in the great American election year of 2008, while gas prices were soaring. Even then he was calling it “an annual exercise in futility.” Can you imagine, as Obama v. Romney unfolds, either one of them calling for, in effect, new taxes to create higher gas prices? Dead on arrival, even for “progressives.”
The politically expedient way to talk about gas prices, if you're a Democrat, is to talk about incentives the government has put in place to discourage dependence on foreign oil. If you're a Republican, it's to blame the Democrats for not allowing enough offshore drilling. The fact that such drilling is actually up under Obama didn't deter Sen. John Barrasso of Wyoming from making it appear on the Senate floor that oil exploration is at a standstill. Note that he makes perfect sense when talking about the pain at the pumps, but then goes off the rails on the solution:
I’ve noticed that some carmakers, including Ford, are selling compacts like the Focus hand over fist, but real European-style mini cars such as the Fiesta are moving much slower. That’s a function of what we’re talking about here. People are insisting on great fuel economy, but still buying the biggest car they can get away with. In May, GM sold 7,205 tiny Sonics, and 19,613 compact Cruzes.
I’m not running for office, so I can say that a price floor for gasoline would be a great idea that would give automakers some stable ground as they plan the future. It’s an incentive not just for electric cars, but for the smaller vehicles that really should be dominating our roads.
MNN tease photo of gas station prices: Shutterstock