By Michael Hatch,
Special to Wheelstalk.com -
A recent study from the National Automobile Dealers Association (NADA) in the United States confirms what many have observed for years: the demand for and value of small vehicles rise and fall virtually in lockstep with gasoline prices.
The NADA study shows that gasoline prices have dropped by 3.5 per cent stateside in the past year (if a little less here at home) while prices for used smaller vehicles has declined by something close to the same amount.
Years of data on the Canadian side of the border confirm that the demand for small, more fuel efficient vehicles very tightly mimics the price of gasoline here as well.
Last year in Canada, truck sales outnumbered car sales by a much wider-than-average margin. The share of trucks relative to cars has been on the increase here for the past number of years, since oil hit its peak price of almost $150 per barrel four years ago this week.
It’s almost as if consumers’ conversations around the breakfast table go something like the following: “Honey, I see gas prices are down today. Looks like we can afford that big SUV after all.”
Of course it is an exaggeration to assume any such conversations are happening, and a pretty insulting one at that. And I am a firm believer in the wisdom of consumers. But examining the data, one has to wonder how short-term fluctuations in a metric widely accepted as volatile – gasoline prices – can drive to such an extent the relative demand for very long term items – cars.
Surely consumers know that a vehicle purchase is a long-term investment and the single biggest retail purchase they’re likely to make. A car that rolls off an assembly line today is likely to last close to 20 years and 300,000 kilometres. Over time periods anywhere near that, gas prices are only going in one direction. It’s not going to be down.
Gasoline prices are one of dozens of variables consumers take into account when they’re shopping for a car. For many of them, it’s not even in the top five or ten factors that drive their eventual purchase decision. But still, the data is intriguing. Sometimes very short term variables can influence decisions that make an impact many years into the future.
Michael Hatch is the Chief Economist with the Canadian Automobile Dealers Association: www.cada.ca