Rising gas prices, and how it affects car sales

[Northstar]

There has been a lot of discussion recently about rising gas prices and how it will affect sales of vehicles that don't get great gas mileage.

Here are my thoughts on the issue:

1) We haven't seen a huge decrease in sales of big SUVS that get terrible mileage. Why is this? It has been proven, more or less, that owners of big, gas-guzzling SUVs have the income to support the cost of gas.

2) Most cars that get poor gas mileage are more expensive than cars that get good gas mileage. What does this have to do with anything? People who can afford more expensive cars can, in most cases, afford to pay more for gas, just as owners of the big SUVs can afford to pay more for gas.

3) There are going to be a number of people who simply aren't going to care if they have to pay more for gas. This is evidenced on this board. Some people simply don't care if they have to make a sacrifice somewhere else.

4) Many of the vehicles that get poor gas mileage, other than big SUVs, offer versions that get decent gas mileage. The volume of the model as a whole is propped up as a result of the cheaper, more fuel efficient models.

My theory is based upon some assumptions, as any theory is; I assume that:

1) People spending $40k on a car make more money than people spending $25k on a car most of the time.

2) The percentage of one's annual income vs. the amount they spend on a vehicle is within ~10% in most cases. For clarification, if the average person who makes $120k a year spends $40k on a vehicle, then the average person who makes $75k a year spends $25k on a vehicle (the price of the vehicle is 1/3 of each person's annual income).

Let's say someone buys a Malibu 2LT V6 for $25k and another person buys a Charger SRT9 for $40k, and yet another person buys a Cobalt for $18k. If each person drives 8k miles in town each year and 4k miles on the highway, and gas at $3.20 per gallon, here are the mileage calculations: The Malibu would require $1998 for gas, and the Charger would require $2680. That's a difference of less than $700 a year, or less than $60/month. The Cobalt would require $1576 per year for gas.

Now, assume both cars are financed for 60 months at 5% interest (not including sales tax, however): Malibu would cost $437.50 per month, the Charger would cost $700 per month, and the Cobalt would cost $315 per month.

If we assume that the Charger owner makes $120k/year, then they make $10k/month. $700 is 7% of $10k. Gas costs $233 a month for the Charger, or 2.23% of $10k. In total, the Charger owner would spend 9.23% of their income on their vehicle.

If we assume that the Malibu owner makes $75k/year, then they make $6250/month. $437.50 is 7% of $6250. Gas costs $166.5 per month for the Malibu, or 2.66% of $6250. In total, the Malibu owner would spend 9.66% of their income on their vehicle.

If we assume that the Cobalt owner makes $54k/year, then they make $4500/month. $315 is 7% of $4500. Gas costs $131.33 per month for the Cobalt, or 2.92% of $4500. In total, the Cobalt owner would spend 9.92% of their income on their vehicle.

If gas were to go up to $3.50 per gallon, the Charger owner would spend $255 on gas, or 2.55% of $10k , the Malibu owner would spend $182 per month on gas, or 2.91% of $6250, and the Cobalt owner would spend $143.5 per month on gas, or 3.19% of $4500. As you can see, the percentage increase for the cost of gas is greater for the owners who make less money.

As evidenced by the numbers above, an increase in gas cost affects owners of less expensive vehicles more. Now, those numbers are purely hypothetical and based on some assumptions, but I think the assumptions are pretty accurate (as I said, within 10%). I don't see someone who makes $54k a year buying a Charger for $40k, and I don't really see someone making $120k a year spending only $18k on a Cobalt. This isn't going to be the case all of them, and I could see someone making $120k/year on a Malibu, but I don't think they would chose the Malibu because they can't afford the extra $60/month on gas.

Perhaps I am wrong, and we shall see, but I think the fact that the vehicles that get worse gas mileage are, more often then not, more expensive vehicles and bought by more wealthy people is too often overlooked. Big SUVs are prime examples of this. The prototypical Tahoe driver makes a good sum of money each year, and I think it's obvious they can afford to pay for the gas since big SUV sales haven't fallen off that much.

Now, the case can certainly be made that the buyer of the Charger would still not buy the Charger and buy something else for $40k that gets better mileage, like the CTS for example. That will remain to be seen, and it could very well happen.

Discuss.

[Camino LS6]

Interesting take on the situation.

I'm going to sleep on this one.

[ocnblu]

I feel like I am losing ground. My fixed-rate mortgage payment inches ever-upward due to local tax increases. Gasoline, and, subsequently, food have gone up considerably in the last year. Since my accident, I am sure my insurance premiums will rise. And I haven't had a raise in 4 years. So... gasoline prices affect my budget. It now takes over $70 to fill up my truck when it used to take about $45. It certainly affects my ability to keep my money in the bank. Yes, this time of year I drive less than when I am traveling in the summer, going camping or to the beach, but what's it going to be like next summer? I am pessimistic about my situation, and I am sure I am not alone.

[Robert Hall]

Also take into consideration that historically, vehicles that have gotten poor gas mileage aren't typically daily drivers. People who buy SUV's usually have a reason, like having to towing boats/ATV's/snowmobiles, hauling large families, etc.

In some areas, maybe...SUVs of all shapes and sizes are very common as daily drivers around here..they are a staple of suburbia in the Denver metro area.

Edited December 2, 2007 by moltar

[thegriffon]

Now you have to adjust the economics by adding $5-10K to the price of every vehicle for extensive fuel-saving technologies. And if you're a contractor, handyman, gardener or courier etc., factor in having to upgrade to a class 4 or 5 medium truck to stay in business.

[Camino LS6]

Now you have to adjust the economics by adding $5-10K to the price of every vehicle for extensive fuel-saving technologies. And if you're a contractor, handyman, gardener or courier etc., factor in having to upgrade to a class 4 or 5 medium truck to stay in business.

If that last bit is true, then my livelihood has just evaporated.

I hate this garbage.

[gm4life]

I think the same thing, with gas hovering around 3 bucks a gallon in my area, I still keep seeing new Turd's, Tahoes, Suburbans, Yukons and GM trucks. It seems to me the same way. Someone asked why I got the Bonneville when I could have gotten a more fuel efficent (non barge) I said is it your money?

[vonVeezelsnider]

To be fair, your Bonne is just as fuel efficient as V6 American cars the next two sizes smaller...

[knightfan26917]

I am pessimistic about my situation, and I am sure I am not alone.

Not completely, no.

I can't say I'm pessimistic about my situation, but I'm not overly enthusiastic about it either. Medical bills play a big part into my "budget planning". But, gas, not so much. I think that is the case because something medical can be much more "catastrophic" than the amount I spend on gas each month, winter AND summer.

Sadly, I'm not making anywhere near the hypotheticals in Northie's original post.

Cort:34swm."Mr Monte Carlo.Mr Road Trip".pig valve.pacemaker

WRMNshowcase.lego.HO.model.MCs.RT.CHD = http://www.chevyasylum.com/cort

"I see our time has gotten stale" ... Eve 6 ... 'Inside Out'

[FUTURE_OF_GM]

Wasn't there an article recently that said as long as gas prices increase slowly that americans will continue to adjust and continue to drive whatever they want?

It's the shock of gas prices leaping over night that hurts us, not so much incremental increases as that has been burned into consumers minds as simply "the way life is now"

We know this, the automakers surely know this and most importantly, OPEC probably definitely knows this... Remember, 'wound the cash cow and feed off of it, don't kill it.'

[A Horse With No Name]

Peak oil is here and we might as well get used to it. When gas hits $5.00 a gallon plus it will affect us all.

Chris

[daves87rs]

Peak oil is here and we might as well get used to it. When gas hits $5.00 a gallon plus it will affect us all.

Chris

Agreed.

And I don't think people realize just how soon that will be...

[frogger]

I'm probably going to buy a vehicle next year and I'm guessing that by the time I'm ready to move on from it 6-7 or so years later, gas will probably be 50% or more expensive than it is now. So I'm going to factor that into my purchasing decision. I'm not going to spend more on gas than food! I spend a small percentage of my income on vehicles and the related expenses, much less than put away on investments and savings, and I don't plan on that changing.

Edited December 5, 2007 by frogger

[gm4life]

I only get a 70mph on the hwy like 25mpg my Impala will slide by over 30mpg. But no other than the sub-30 at above 65 and up speeds and crummy around town economy (lots of hills in my town and I don't granny it) although I do more so in the winter.

[balthazar]

I generally listen to 'financial' radio during the day. Over the past weeks, ever since oil started climbing, it has been a regular topic, with analysts from all walks weighing in on the topic.

Increasingly over the last week, more and more analysts have predicted the price of oil to fall to between $70-80/barrel in 2 month's time, as the economic factors that drove the speculation that pushed oil to $98 are no longer in play. It's already fallen about $12/barrel.

BTW... the inflation-adjusted high for oil was in Dec 1980 at $198/barrel.

I believe, after listening to much more involved individual's takes, that the perception ($90-100/barrel=mongo expensive) is overstated and we will not see great changes in people's habits at $4/gallon or even $5. There was no greater emphasis in '80 WRT consumer shift than there is today, and it was over twice as expensive then.

[daves87rs]

I generally listen to 'financial' radio during the day. Over the past weeks, ever since oil started climbing, it has been a regular topic, with analysts from all walks weighing in on the topic.

Increasingly over the last week, more and more analysts have predicted the price of oil to fall to between $70-80/barrel in 2 month's time, as the economic factors that drove the speculation that pushed oil to $98 are no longer in play. It's already fallen about $12/barrel.

BTW... the inflation-adjusted high for oil was in Dec 1980 at $198/barrel.

I believe, after listening to much more involved individual's takes, that the perception ($90-100/barrel=mongo expensive) is overstated and we will not see great changes in people's habits at $4/gallon or even $5. There was no greater emphasis in '80 WRT consumer shift than there is today, and it was over twice as expensive then.

True, but one thing is been forgotten.

We live in a new age-one driven by fear. People will believe damn near anything.......

If you tell people gas will hit 200 bucks a barrel, they will run out and buy a Yaris....

My next car will be a compact, as a lifestyle change is in order (baby on the way)...I have to put money in other places....

But if I wanted a truck, all this wouldn't stop me from buying one...though making sure one has a little extra money on the side never hurts...

[regfootball]

I feel like I am losing ground. My fixed-rate mortgage payment inches ever-upward due to local tax increases. Gasoline, and, subsequently, food have gone up considerably in the last year. Since my accident, I am sure my insurance premiums will rise. And I haven't had a raise in 4 years. So... gasoline prices affect my budget. It now takes over $70 to fill up my truck when it used to take about $45. It certainly affects my ability to keep my money in the bank. Yes, this time of year I drive less than when I am traveling in the summer, going camping or to the beach, but what's it going to be like next summer? I am pessimistic about my situation, and I am sure I am not alone.

you pretty much touched on everything.

my prop tax has gone up 35% in two years....some of that due to a school referendum, but equally due to sheer 'the city needs the money and can find a way to do it'.

since the last 18 months gas has gone up like what 70-80%

electricity and natural gas gone up

milk has gone up like 75 cents a gallon in a year. We prob use 4-6 gallons a week of the stuff. Meat, dairy, juice, all food has gone through the roof.

my wages have gone up like 3-4%. this is the real truth here. they like to say mortgage defaults are the main problem but if people's expenses were level and they were actually getting raises, none of this mortgage mess would be happening.

people's wages are not keeping up with the cost of everything else, plain and simple. they could afford the house when they got into it.

So the real story is people are just not better off than when we started this mess in Jan '01. Jan '09 cannot come soon enough.

-dave, a baby on the way forced us into an aztek back in 04. just sayin...LOL-

there is a guy at our church who has an S class and a suburban. he is/was the CEO of a good sized company. I am pretty sure he doesn't blink at filling that suburban. even with 4 dollar gas, his suburban is like a pontiac vibe to some people. a hatchback to pick up grocery....and i know he tows with it though.

our driving doesn't change much regardless of gas prices. most trips are to work. other trips are for shopping, visit relatives, etc. Trying to be conscious about saving gas only can net us maybe 5-10 savings in our usage.

the socialist lefties want us to have stressed pocketbooks and be forced into changing our living patterns in the interest of keeping the man down. they want us less mobile, and more subsurvient to our jobs and their power structure. High gas prices is one way to limit our mobility and where we live, and where we drive to our jobs, and how much we travel and participate in recreation.

Edited December 6, 2007 by regfootball

[FUTURE_OF_GM]

True, but one thing is been forgotten.

We live in a new age-one driven by fear. People will believe damn near anything.......

If you tell people gas will hit 200 bucks a barrel, they will run out and buy a Yaris....

Amen...

It's a media fueled hysteria that has reached a whole new level in the aftermath of 9/11.

But then again, that's what they (The leaders of our society) want. It's a system of sociological checks and balances.

[FUTURE_OF_GM]

you pretty much touched on everything.

people's wages are not keeping up with the cost of everything else, plain and simple. they could afford the house when they got into it.

So the real story is people are just not better off than when we started this mess in Jan '01. Jan '09 cannot come soon enough.

Exactly!

And that's the sad story that accompanies 'free trade' and our new 'prosperous global economy'

Any sociologist will tell you that the standard of living in america is dropping as we are becoming a 2 tier society and the rich get richer off of 'managing' the companies - overseas that the working class broke their backs to build. Service jobs? Yeah, we can get those, except they pay (on average) about 1/3 to 1/2 of what the manufacturing jobs payed.

The data for the economy can be skewed any way you want. Hell, basic economics will tell you that. So the 'good news' we are being fed isn't always true IMO. It's when you get 'in the trenches' and see how real people like you and me are living that you find out the REALITY of things.

the socialist lefties want us to have stressed pocketbooks and be forced into changing our living patterns in the interest of keeping the man down. they want us less mobile, and more subsurvient to our jobs and their power structure. High gas prices is one way to limit our mobility and where we live, and where we drive to our jobs, and how much we travel and participate in recreation.

See my above post (In response to Dave) this is exactly what I was touching on. Although, as much as I hate liberals, I think the conservatives are just as bad about it.

[A Horse With No Name]

...agreed on the conservative thing....

Chris