Driving less – the shock to trance phenomenon

Joe White at the Wall Street Journal reports on the fact that Americans drove less and starting switching into more fuel efficient vehicles as gas prices rose to close to $4 a gallon over the summer.

The article covers several points, two of which we want to address here: The similarity to the oil crisis of the late 1970’s and the short term versus long term choice consumers make.

In the late 70’s when oil prices rose, interest in electric vehicles, solar panels and windmills rose dramatically, as the crisis was mitigated by conservation and new discoveries interest faded fast and consumers bought what they always had – big performance based vehicles. The same will probably happen now, unless there is a restructuring of the financial underpinnings of the major automakers, that allows them to significantly retool their factories and realign worker skill and get ready for the alternative fuel economy that is hopefully coming.

And on the short-term vs long-term issue: Two weeks ago, when a client of ours pointed out that gasoline was now less than $2 in their area at most stations and that no one cared for the hybrids all of a sudden, we knew that we would soon see what we saw in the 70’s: A quick reversal back to larger more powerful vehicles. We also spoke to a young family that had just bought a small sedan. They looked at all the hybrids for ideological reasons, but argued that they hoped to buy a new car within 5 years, so the additional cost of a hybrid could not be recouped at $2 or $3 a gallon.

Consumers memory is terribly short and the future is almost always anticipated to be brighter. The economy is still in the tanker, but at least gasoline is cheap (and probably will be for a while is the reasoning). We’ll see how it all shakes out, tomorrow and the next day millions of American’s will get back on the road and enjoy “normal” gas prices again.

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One thought on “Driving less – the shock to trance phenomenon

  1. Kevin Smith says:

    Although I’ve never been an advocate for any incremental taxation, I do believe that now might be the time for a stairstep gas tax. As Washington attaches strings to a bailout effort, why not add an energy tax that would bring US fuel prices a bit more in line with Asian and Euro markets? The Big 3 have built truck heavy portfolios aided and abetted by a weak US energy policy (and legacy issues that forced higher margin truck plays). If Washington insists on more strict CAFE requirements perhaps energy taxes could spur more continuous consumer demand for small vehicles and add valuable revenues at the same time.

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