Not surprisingly, rising gasoline prices can affect motor vehicle buying behavior.1 And lately, prices have been rising fast. Based on daily estimates from the American Automobile Association (AAA), regular gasoline prices jumped again in April, following a string of increases that started in July of 2010. Over this same time period, the auto share of total light vehicle sales has been trending up. That is, buying behavior has shifted more toward autos and away from light trucks such as SUVs. In fact, the latest data show that the 3-month average share of light vehicle sales accounted for by autos rose to 52 percent, their highest share in over a year. The close relationship between changes in gasoline prices and the auto share of motor vehicle sales seems to hold over time (Figure 1)2, though the “cash for clunkers” program in mid-2009 temporarily disrupted the pattern somewhat.
One major reason consumers shift from light trucks to cars as gasoline prices increase is because of the greater fuel efficiency of cars versus trucks. Data featured by the U.S. Environmental Protection Agency (EPA) show that for model year 2010, new cars had an average fuel efficiency of 25.8 miles per gallon for a composite of city and highway driving. Light trucks, however, had an average fuel efficiency of 19.1 miles per gallon. Annual fuel costs, based on 15,000 miles per year and estimated gasoline prices for April, total $2,186 for cars and $2,953 for light trucks.3
This shift toward cars and away from light trucks can also be attributed to their direct cost – cars often cost quite a bit less than light trucks. If one assumes that cars and light trucks are substitutes and that budgets are a bit squeezed because of fuel costs, a relatively less expensive car seems much more attractive.
The most recent Bureau of Economic Analysis (BEA) data show that the average consumer expenditure (i.e. price) per car is $23,449, while the average consumer expenditure for light trucks is $30,701. That is more than a $7,000 difference. Different incentives offered to purchasers of cars and light trucks also contribute to this price difference. According to the latest Edmunds data available for March, the “true cost of incentives” over the past few months has been larger per unit for cars versus SUVs in various categories where comparisons were feasible (compact, midsize, luxury and large).
All of this tells us that consumers are fairly savvy in making economic decisions, and there is quite a bit of government data out there that can be used to track these interesting trends.
