Fuel Prices Have Little Long-Term Effect on Car Buys

July 22, 2009

This article is included in these additional categories:

Analytics, Automated & MarTech | Automotive | Financial Services | Retail & E-Commerce

While higher gas prices in the US may create immediate demand for small, more fuel-efficient cars, this demand is not sustained over a longer period of time and consumers who were inclined to select larger vehicles eventually go back to buying them, according to an analysis of vehicle sales and gas prices by Experian Automotive.

By measuring vehicle sales against the unpredictable fluctuations in gas prices in 2008 and early 2009, the research showed market share for small and economy vehicles normalized just as quickly as it had initially increased – even when gas prices remained 25% higher than where they started.

As an example of this phenomenon, in January 2008, gas prices averaged $3 per gallon across the country and the small/economy-car market share was 10%, according to Experian Automotive. When gas prices hit $3.70/gallon, market share peaked at 17%. However, when gas prices soared to $4.09 per gallon in August 2008, the market share for small/economy cars was already starting to slip. In September, when gas prices fell back slightly to $3.70 per gallon, market share returned to 10%, Experian said.

“Conventional wisdom would suggest small car market share would rise and fall at a similar rate to the price of gas, but that’s not what our data shows,” said Scott Waldron, president of Experian Automotive. “For auto manufacturers and other businesses looking to gas prices to help anticipate consumer demand, our research has shown this to be only part of the equation.”

Jeff Anderson, head of Consulting and Analytics for Experian Automotive, cautioned automotive manufacturers from reading too much into last summer’s rapid spike in small-car demand.

“Everyone reported on the rapid escalation of small-car demand, but the rapid descent of small car market share went somewhat unnoticed,” Anderson said. “Anyone who predicts a long-term shift in consumer car-buying sentiment based solely on last summer’s knee-jerk reaction to gas price increases could be in for a surprise.”

According to Experian’s research, the mid-range car segment appeared to be the most resistant to gas-price increases. Its market share reached 26% in May 2008, when gas prices rose to $3.76 per gallon. It continued to maintain a steady average of market share, holding 24% in March 2009, as gas prices dipped below $2 per gallon. The market stability this car segment was fueled in large part by significant gains in market share for the Honda Accord (3.8%) and Honda Civic (3.5%) in March 2009, which offset losses in other brands.

Additional study findings:

  • Certain models showed strong resistance to gas price fluctuations, even if their vehicle class did not. While pickup trucks saw declines during mid-2008’s gas price increases, Chevy Silverado and Ford F-150 pickup trucks still fared well. Chevy Silverado market share peaked at 5.4% in August 2008, when gas was $3.79 per gallon. Ford F-150 market share peaked at 5% in November of last year, when gas was $3.17 per gallon.
  • Hybrid market share hit 3% in April, when gas was $3.44 per gallon, but fell below 2% in August, when gas reached $4.09 per gallon.
  • SUV market share was at 12% in January 2008, when gas was $3 per gallon. It slipped to 7% market share in May, when gas was $3.70 per gallon, and did not return to 12% market share until gas fell below $2 per gallon in December 2008.

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