Gas Pressures

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As I am writing this, the average price of a gallon of gas in the U.S., according to the U.S. Energy Information Administration (EIA), is $2.99 a gallon. Less than three bucks. Who would have thought this would be the case? In June, the average price was $3.69 a gallon. That’s about a 19% difference. What else can you think of that’s gone down in price by about a fifth in five months?

Who doesn’t think that this fall in gas prices is a good thing? Everybody ought to be happy, right?

Well, maybe not.

Product planners at OEMs are probably not all that chuffed with the fall in prices. Odds are, they were thinking of a bogey on the order of $4.00 per gallon for the next few years. Now the certainty is less so.

When the sales numbers for October came in, not surprisingly the top three vehicles were pickups: Ford F-Series, Chevrolet Silverado and Dodge Ram. Even though every-body knows that the 2015 Ford F-Series is a rather transformative vehicle (yes, the aluminum is 
impressive, but the level of technology in that vehicle cannot be overlooked because it is arguably taking the pickup to a place where only luxury cars have been before) and so some people might be delaying their purchase of a Ford truck, even though Ford has been winding down production of the ’14 models so there is less availability (although there have probably been some good prices on the earlier models as dealers free-up lot space for the new one), F-Series sales were still 63,410 units, down a mere 0.6% from October 2013.

Ford C-MAX sales—Ford’s Prius-fighting hybrid and plug-in—were off by 22.5% in October compared to year-earlier figures. The vehicle is down 23% year-to-date. Speaking of the Prius, it was down 13.5% in October and is off 11.6% for the year. (Although it is worth noting that it is still the dominant vehicle in the hybrid category: Through October, 179,001 Prius models have been delivered, compared with a mere 23,693 C-MAXes. And to put that 179,001 into context, you can add together the sales of the Toyota Avalon (55,304) and every available Scion model (total: 50,285) and still not reach the sales of the Prius. Or, you can take the sales of the C-MAX (23,693) and add in the sales of the Fiesta (56,032) and Taurus (46,601) and still fall short of the 179,001 units (126,326)).

Still, directionally it seems as though alternative powertrains are not doing as well as people might have thought they would be. Chevy Volt sales are off 14.9% for the year (15,979). And while Nissan can get bragging rights for the all-electric LEAF sales being up 35% for the year, realize that the total number is 24,411, which is fewer than the number of the largely mocked Nissan Juke, which has had sales of 34,021 units through October.

According to the EIA, the highest average retail price for a gallon of gas in the U.S. was $4.11 in July 2008. And we can remember what was going on in 2008 and 2009. Suddenly those truck sales weren’t what they once were. In fact, sales overall quickly spiraled into the tank. 

While that is a memory that few of us want to remember, it is a memory that few of us should forget.

Without a doubt, the global OEMs are doing a solid job in terms of increasing the fuel efficiency of their fleets. According to the University of Michigan’s Transportation Research Institute (umtri.umich.edu), CAFE performance has consistently increased annually from model year 2008 through model year 2014 in the U.S., going from 25.5 mpg to 30.8 mpg.

But let’s say that the planners assume that gas prices are going to continue at a low level, not increase. What is the likelihood that they’re going to be proposing alternative materials to lighten up vehicles and increased electrification to improve the fuel efficiency and emissions performance of vehicles? After all, if customers are out there buying 
full-size pickups and SUVs, it would be folly not to meet market demand, right? (And while one might make the argument that CAFE regulations are not going to allow vehicle manufacturers to do any fuel-efficiency backsliding, let’s not forget that CAFE comes out of Washington and the only certainty there is that uncertainty rules.)

That said, the average price of a gallon of gas in Germany is over $7 per gallon and in May it was over $9. In Japan, the average price is $5.26. In China, it is about $4.80. Do you think that auto makers in those countries are going to stop developing fuel-efficient vehicles because of the price in the U.S.?

And what happens if the price in the U.S. goes north and the vehicle manufacturing capacity has gone large?