The Shift Begins: Carmakers Respond to Customers Who Are Responding to Gas Prices

I've talked about it here at EnergyCrunch before, but I think we're now seeing some real-world evidence. My previous blog post talked about how consumers will start to change their patterns once they realize that the gas will cost more than the car they're buying. I mentioned $6/gallon as when that would happen. Now it seems to be starting to happen much sooner.

An article in today's New York Times reports that consumers are buying smaller cars (it would be hybrids, plug-in hybrids, and electric vehicles if more of those were available). Check out this astonishing real-world ripple effect:

"Light truck sales fell a staggering 32 percent at G.M., 25 percent at Ford, 19 percent at Nissan and 16 percent at Toyota."

"G.M. said this week that it planned to cut production of its full-size pickups by 88,000 units and of its large S.U.V.s by 50,000 units this year."

There you have it. Oil goes up, gas price goes up, automakers almost immediately change the blend of vehicles they're producing.

Simultaneously, the AP reported that hybrid sales went up 38% last year even as overall vehicle sales were down 3%.

If I were the Big 3 (or any automaker), I'd be fast-tracking whatever plug-in hybrid or electric car research I already had underway. And if I didn't have any underway, well I'd be hanging up a For Sale sign (or shorting my own stock) because the game's about to be over.

What will spur change in the energy industry? Gas that costs more than your car?

I was driving around yesterday and got to thinking... with the rising price of oil due to shrinking supply and rising demand, we'll soon realistically see gas prices in the $5 to $6 per gallon range. Some Americans will scoff, but as many people have pointed out, Europe's been above this level for a long time. At that level, we can see from some pretty standard calculations that the gas will cost more than the car over the life of the car.








And if we slightly modify some of those assumptions, we see a dramatic shift where the fuel now costs nearly 3X what the car cost.








Prices such as these would look more like the razor blade model, where you get the razor for cheap, but the company nails you when you buy the blade refills for 12 bucks. Come to think of it, if I were an oil company I'd launch a series of ads showing just how sexy and cool these un-economical cars are... you know, distract people from the fact that they're paying more for the fuel than the car.

But I think consumers are smart, and while they've already begun to wake up, they'll REALLY wake up when gas hits $6/gallon. And I do believe demand for electric cars, not just hybrids, will begin to come from the bulk of society, not just the "green fringe."

And that's really where we have to go on this issue. Change will have to come because it makes economic sense to the consumer. I fear we're living a pipe-dream if we think that consumers will think 30 years into the future and make a choice that hurts them economically today. They have to feel some pain so that the better choice becomes the economical choice, and vice versa. Unfortunately, we'll see just how much pain we have to endure first.