….Consumers Are Immune to Higher Gas Prices
1. In terms of consumer economics, gasoline prices are an inelastic product. Even if gasoline prices climb dramatically, consumers will continue to behave in much the same way because they believe they need to drive their vehicles to get from point A to point B. It’s not like many drivers are going to drive less, and get around by taking public transportation. In general, most people are willing to sacrifice other kinds of purchases to spend more of their income on gasoline, at least in the short run.
2. As much as we like to believe higher gas prices will drive sales of smaller and hybrid vehicles, it won’t happen with any magnitude. North American consumers, in particular, like large cars and always have. As well, the North American population has two trends happening: it’s aging and a growing number of people are over-weight. This suggests that small cars won’t appeal as much as comfortable large vehicles such as sedans, SUVs, pick-up trucks and mini-vans as opposed to Smart Cars and Honda Civics.
3. If you live in suburbia, you need a car to get around. To get around, you need to buy gas.
4. Even with the environmental movement gaining more traction, consumers don’t really think about gasoline when it comes to saving Mother Earth. Instead, the focus - at least for now - is recycling and composting.
More: The NYT’s Steve Levitt says “Hurray for Higher Gas Prices!”. Click here to see why. According to The Nielsen Company, higher gas prices mean that gas will account for about 19% of a consumers’ weekly spending compared with 12% to 16% in 2007. As well, here’s a CNNMoney article on why U.S. gas prices are so cheap - the 45th cheapest out of 155 countries polled. Meanwhile, Where’s the Outrage suggests higher gas prices should encourage people to explore alternatives such as the electric-powered cars.
About: Maybe I was wrong about people being immune to higher gas prices. The New York Times has a story that people are flocking to public transportation in the face of $4/gallon prices. Meanwhile, EcoTrekker offers up “101 Ways to Use Less Gas”.
Technorati Tags: Gasoline
May 5th, 2008 at 11:00 am
Point 2 seems somewhat in denial of the facts. There is a lot more evidence than just the NYT piece that consumers are moving away from SUVs in particular. Try reading a blog like http://www.thetruthaboutcars.com and you’ll see that SUV sales have been tanking, and resale values have dropped sharply. Here’s another data point: http://blog.craigslist.org/2008/04/time-to-unload-that-gas-guzzler/
May 5th, 2008 at 11:11 am
Actually people are feeling the effects and more and more people are carpooling. Take the recent press release from RideSearch.com which said that users have doubled each month since January.