Cheap gas changes the American economy profoundly. It can make a suburban house more valuable and lead to sizeable layoffs in related industries, which then produces ripple effects in the economy. And, it turns out, it can also effect what kind of cars Americans buy.
How Cheap Gas Changes the Green Car Movement
Mike Rabkin is the owner of From Car to Finish, a national new-vehicle negotiating service. For more than 20 years, he has negotiated new vehicles for purchase or lease—over 7,500 hundred of them, in fact.
“I can safely say that based on what I’ve seen over the last 21 years, consumers go back to buying what they want when gas prices go down
(i.e. larger, less fuel efficient vehicles), and dealers end up having to give better deals on gas/electric hybrids,” Rabkin explains. “This is because the hybrids inherently come standard with expensive technology that allows them to get better mileage. If consumers don’t care as much about mileage due to lower gas prices, they don’t want to pay the price premium for that technology. This is especially true when the hybrids don’t meet their vehicle needs in areas other than mileage, which is frequently the case.”
Some areas where hybrids can fall flat, Rabkin explains, include passenger capacity—hybrids tend to be smaller vehicles; cargo capacity—again, think smaller vehicles, not big SUVs/pickups; towing ability— “Many hybrids’ engines are weak, since they’re designed for fuel efficiency, not power,” Rabkin explains; and acceleration and performance. “Many hybrids have anemic acceleration, due to being tuned for fuel efficiency at the expense of acceleration,” he adds.
The bottom line, according to Rabkin? “People will gravitate towards the vehicle they actually want and need when fuel prices don’t get in the way,” he says. “My observations are that Americans as a whole prefer bigger vehicles that meet their needs with sufficient power to get them around when given the chance. There are always exceptions to that, but that is the default.”
Green for the Long-Term?
Of course, just because gas is cheap now doesn’t mean it will be five, even ten years from now. And that factors in, says Shel Horowitz, author of Guerrilla Marketing Goes Green. “Smart consumers will recognize that the price of gas now has very little to do with the life cycle price of gas (and other petroleum products) during the three to 20 years they own their vehicle, and that the general trend is up,” Horowitz says.
He adds, “In the US, the subsidy and tax structures already keep prices artificially low. When we had $4 per gallon gas, parts of Europe were paying $6 or even $8. And those with long memories will remember that the last time gas went dramatically down, those who bought huge SUVs got slammed when prices went back up.”
And indeed, gas prices can come as a real surprise, occasionally. Motor Mouth explains that 2014 started off with the continuation of the electric revolution, but by year’s end, saw the return of cheap gas: “With the price of gasoline so low — and likely, say many analysts, to stay there for some time — it’s unlikely that any alternative powertrains are going to make inroads against good, old-fashioned internal combustion. Indeed, the biggest problem facing the automotive industry over the next few years may be consumers returning to the gargantuan SUVS they only dumped because of high pump prices.”
Government vs. Consumer Desires
In addition, there’s now a disconnect between what’s selling like hotcakes—essentially giant gas guzzlers—and the federal regulatory demands. Auto companies have been investing in small cars or electricity-powered models in order to meet changing government emissions regulations, but now those cars aren’t selling. And that spells potential trouble for the auto industry, according to some experts. Though oil prices have fluctuated, the U.S. government has not changed its requirement that auto makers build vehicle fleets that will average 54.5 miles per gallon by 2025.
The federal government, for its part, expects automakers to shift 2 percent of their fleets to electric vehicles and 5 percent to hybrids in order to comply with the new regulations. “We believe hybrids and plug-in electric vehicles are important for the long term, as nearly all experts expect gasoline prices to rise again,” the EPA told Business Insider.
Even Tesla Motors’ CEO Elon Musk has leapt into the conversation, saying falling gas prices are a major concern for the company’s plans to release an affordable car by 2017. “It just means we will have to work harder at improving the cost of electric vehicles,” he said at the North American International Auto Show on Tuesday.