When auto companies report their sales figures tomorrow, we’re likely to hear again how the sale of cars (especially gas sippers) is growing, while the sale of light trucks (especially gas guzzlers) is slumping (check out the New York Times story from Sunday “Detroit’s Rebound Is Built on Smaller Cars [1]”). Why? Since April, gas prices have continued to increase. The Energy Information Administration reported that the average retail price of gasoline was $3.96 in May, up from $3.85 in April and $3.62 in March.
As shown in Figure 1, the auto – or car – share of total light vehicle sales to consumers has been trending up as gas prices have increased, so buying behavior has shifted more toward autos and away from light trucks, like SUVs (note that the relationship breaks down a bit during the Great Recession and the “Cash for Clunkers” program provided some steroids for the car market). While this is not surprising, let’s consider it in the context of additional data. Statistics from the U.S. Environmental Protection Agency (EPA [2])1 show that for model year 2010, new cars averaged 25.8 miles per gallon for a composite of city and highway driving, whereas light trucks averaged 19.1 miles per gallon. Based on these numbers, if you drove 15,000 miles per year, you would end up paying about $800 more in annual fuel costs for a light truck versus a car (about $3,000 compared with $2,200 based on the prices in April). Yikes! And that’s only over the course of one year!2
Data on the breakdown of car and truck sales come from Commerce’s own Bureau of Economic Analysis (BEA [3]), which uses incredibly detailed information to calculate the relative sales of cars versus that of trucks. BEA starts with unit sales data and refines that data into consumer, government and business sales using new motor vehicle registration data. (The registration data for the latest month is a projection based on the prior month). The consumer auto unit sales are then multiplied by average price data, which is based on three model years, to calculate the total value of consumer auto sales. A similar calculation is done for light trucks.
As we have stated before, the 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 a household’s budget is squeezed by higher fuel costs, then a relatively less-expensive car will likely be much more attractive. However, as we reported last Friday [4], for the average household, tax breaks and higher income due to growing employment have outpaced spending on gas forced by higher pump prices.
The most recent BEA [3] data show that the average consumer expenditure (i.e. price) per car is $23,755, while the average consumer expenditure for light trucks is $30,850 – a difference of more than $7,000. Varying marketing incentives offered to purchasers of cars and light trucks contribute to this price difference. According to the latest data available for April3, the “true cost of incentives” over the past few months has been fairly substantial per unit for cars versus SUVs.
Taken together, the economic picture of cars versus trucks is one of savvy consumerism that is likely to grow with the administration’s new fuel economy labels [5]. These labels offer consumers more information to consider when shopping for a new vehicle, including the expected savings over a five-year period, fuel economy comparisons with other vehicles, and clear guidance on each car or truck’s environmental impact. On a broader scale, the car versus truck analysis is also an example of the massively valuable trove of government data that can be used to track and understand important economic trends.
~Mark Doms, Chief Economist, US Department of Commerce
May 31, 2011
P.S. Friday is National Donut Day.
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- 1. Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975 Through 2010, November 2010
- 2. See the EPA [7]website for more about fuel economy labels.
- 3. Data is from Autoobserver.com [8]
