Tuesday, May 06, 2008

Rational Economic Decisions: Gas prices up- fuel efficient car sales up

Vast numbers of 19 mpg (or worse) SUVs will soon be available at bargain prices at the used car lots, as consumers begin to figure out the new economic reality of gasoline prices. As reported here:
A recent report shows new pickup and SUV sales are down 17% from this time last year. On the other hand, new car sales are up 5%.

While it's true that sales of smaller cars are up this month, manufactures still aren't happy, because the bigger pickups and SUV's are where they make most of their profits and with the high price of fuel those vehicles aren't selling.

Until gas prices go down, big automakers, namely GM, Ford and Chrysler, will probably keep losing money.
You know, unless they were nimble enough to switch assembly lines.

Reservation clerks at rental car agencies report that customers are more conscious than ever about the mileage of the vehicles they rent. Often the cost of filling the 35 gallon gas tank on a Ford Expedition exceeds the daily rental price of the vehicle. One clerk states that a frequent request is for cars that "get good gas mileage" and that customers now often ask for the EPA fuel use estimates when deciding what cars to rent.

Actually, a move to smaller cars for daily use may be a boon to rental car companies which stock larger vehicles because renters may use their smaller cars for daily use but rent larger minivans and SUVs for special trips and occasions. Not having to pay the higher daily operating cost of a less fuel efficient vehicle may allow smart consumers to save substantial money in the long run.

A question remains whether the "soccer moms" who line up to pick up their kids for after school events will be willing to downsize to more fuel efficient vehicles on a permanent basis. Top photo is the Ford Expedition ($31,000+ MSRP) (18 mpg). The lower photo is of 34 mpg Ford Escape hybrid ($26,000+ MSRP). The hybrid starts about $7000 higher than the regular Escape which gets 24-28 mpg.

At $4 gallon, a 10 mpg difference between the hybrid and the regular will require about 144,000 miles of driving to pay off, based on my rough calculations.

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