Cheap Gas + Collective Amnesia = Big SUVs

Jim Motavalli

Jim Motavalli | Jun 07, 2016

We never learn.

Even though the cycle has been repeated many times, Americans continue to react to periodic dips in gas prices by running out and buying big trucks and gas-sucking SUVs. Then they’re shocked—shocked!—to see those prices go up again, leading to IRA-sucking pain at the pumps.

Return with me to the thrilling days of 2008. Prices went way higher than this. (Uzi978/Flickr)I’m reminded of Claude Rains’ Captain Renault in Casablanca, shocked to discover that gambling is going on at Rick’s Café Americain (even while he collects his winnings).

He's shocked, shocked to find that gas prices are going up again!We’re repeating history, people—and we're doing it right this instant, it turns out. Gas prices, while still low, are now on the rise. I’m seeing $2.65 a gallon at local stations. It's traditional for prices to go up in what’s called “the summer driving season,” which we’ve been in since Memorial Day, but this may be a longer-term trend.

There’s odd psychology going on here. A recent AAA survey found 50 percent of Americans opining that gas is “too high” at $2.50 a gallon, though just a few years ago they were paying $4. “We’ve been spoiled with inexpensive gas prices for so long, we’ve come to expect them,” says Money.

Might this be the new "hybrid" approach to running a thirsty truck?And now we need cheap gas, because we’ve gone out and bought that 15-mpg SUV. See what I mean about a vicious cycle?  GasBuddy, a usually reliable source, sees average prices staying around $2.45 a gallon nationwide through August, then coming down a bit in the fall.

But GasBuddy also sees “significant volatility,” as a result of Saudi/Iran tensions over OPEC oil pricing, an upcoming hurricane season and possible rises in gas taxes. Business as usual is not assured.

We’re acting as if cheap oil will flow forever. One way to gauge that is with the industry’s tilt toward introducing more SUVs and crossovers. And consumer preferences are clear—in May, Americans bought 645,000 cars and 890,000 light trucks-- the category that includes pickups and SUVs. Cars were down 15.6 percent—a huge hit—and light trucks up 2.3 percent. Year to date, trucks have outsold cars by more than a million units.

But guess which segment is down the most? Fuel-efficient small cars. According to Black Book data, the average used 2010-2014 vehicle depreciated half a percentage point in May. But subcompacts, the category including such nice cars as the Ford Fiesta, Kia Soul, Chevy Sonic and Nissan Versa, was down 2.4 percent. A year ago, the average car in that segment was $9,048; now, it’s worth $6,683. Of course, this reinforces the narrative that “small cars aren’t good value.”

Because of our collective amnesia, we're used to cheap gas--and thing that $2.50 a gallon is high. But really high prices will cycle around again. (SS&SS/Flickr) I’m crying here. We’re in the political season, so the talk about reducing our dependence on foreign oil is rising again. The federal goal is for an American fleet average of 54.5 mpg by 2025. Although the average fuel economy of new cars rose a bit in April—to 25.4 mpg—we’re way off where we need to be. In fact, former GM vice president Lawrence Burns told me that, to meet the federal targets, cars should be getting more economical at a rate three times higher than what’s unfolding now.   

Right now, the world is awash in affordable oil. But the Saudis and Iranians could come to a meeting of the minds, hurricanes could wash out refineries (as happened after Katrina), and we’re back to a familiar nightmare at the pumps.

Don’t say I didn’t warn you!

The love afffair between "cheap" gas and SUVs, on video:


And here's that scene from Casablanca. It's foreshadowing, of a sort.
 

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