Demand For SUVs And Trucks Increases, Fuel Economy Falls

People everywhere want SUVs and trucks. According to Bloomberg, light trucks, a category that includes SUVs, accounted for 60% of the US new car market in April. When gas prices soared to nearly $4.00 a gallon a few years ago, light truck sales slipped to around 40% of the market. Now that prices are lower than they have been in a decade, sales of light trucks are surging. Manufacturers are adding more shifts at their factories to keep up.

It’s not just in America. Demand for SUVs is up in Europe. When OPEC leaders meet in Vienna later this week, they will be rubbing their hands in glee at the sight of all those Hyundai Tucsons and Renault Kadjars on the streets. SUVs are outselling passenger cars in Europe for the first time ever, according to industry consultants JATO Dynamics.

In China, light trucks and SUVs accounted for almost 35% of passenger car sales in April. That’s up from 10% in 2010 and less than 5% a decade ago. “Consumers are thinking that a period of plentiful oil supply is here to stay,” says Christopher Ruhl of the Abu Dhabi Investment Authority. “The trend of fuel-efficiency improvement of the last few years could be stopped by low oil prices,” he adds.

The average fuel economy for new vehicles sold in the United States slipped to 25.2 miles per gallon. That’s down from a peak of 25.8 mpg set in August 2014. It is no coincidence that the drop in average fuel economy started right after oil prices declined sharply that year.

Data from the Transportation Research Institute at the University of Michigan suggest 2016 could be the first year US average fuel economy is lower than the prior year since 2007. “Fuel economy improvement is really flatlining,” said Sam Ori, executive director of the Energy Policy Institute at the University of Chicago. “The gains completely stopped right at the same time that oil prices started to decline.”

Meanwhile, sales of high efficiency cars like the Toyota Prius continue to decline. The Chevy Volt is selling reasonably well now that the second generation car is in showrooms, but its total numbers won’t be more than a footnote in total vehicle sales this year.

Clearly, America and the rest of the world have a decision to make. Do we simply let market forces dictate our behavior? If so, we will continue to poison our oceans, skies, and lands with fossil fuel detritus until every molecule of carbon based energy is extracted from the earth and burned.

Is there any antidote to manufacturers’ greed and consumers’ hubris? The answer, from all observable evidence, is “No.” The Koch Brothers will win the battle to cram as many dollars as possible into their wallets, but we will all be losers in the end.

Source: Bloomberg