Sunday, March 23, 2008

The conservative function of price

With the price for a gallon of gasoline now over $3, and likely headed towards $4/gallon before too long (of course, nothing is ever for certain with commodities, at least in the short term), no doubt people who own--usually in partnership with their bank--SUVs and large pickup trucks are getting nervous. Who can blame them? There's nothing like filling up with $70+ worth of gasoline every week or two to make one start rethinking his transportation needs.

There was a time when it seemed like practically every second vehicle on the road was large and held a big engine. In my area, it still seems that way, but I think it's just due to past momentum. If what I've noticed at a small, local used car lot is any is any indication (see photo), I think the message may finally be filtering through to folks that the overall trend in gas prices is ever upward and vehicles with cavernous interiors and thirsty power plants drain too much discretionary capital. The idea of the low-mileage big vehicle was supported for years by cheap, abundant (those two words go well together in a [relatively] free market) oil, but it can now no longer support itself, at least by those without deep pockets.

What we are beginning to see today is the first manifestation of a principle in economics known as the conservative function of price. Gas prices are rising, so this catches the public's attention and more effort is made to use gas wisely. People, eventually, tend to act rationally when faced with economic choices which they cannot evade and change their behavior.

This change won't happen overnight, and my small sample of one local, independent car lot does not a national trend make, but for the purposes of this blog post, I am going to extrapolate what little information I have anyway. The photo above does not show very well all of the vehicles on the lot, but I can tell you that about 90% of them are full-size trucks and SUVs. I can also tell you that in the past the ratio was 40% large to 60% small/medium vehicles on that lot. The fact that so many large vehicles with robust energy appetites are available tells me that they are less popular than they used to be. Slowly, the smaller, fuel-efficient car is looking better and better to the average American, especially when faced with the equally distasteful choice of paying a large fuel bill or walking.

Take care.


The Other Mike S. said...

My youngest son, 19, was looking to buy a new truck. He currently drives an old Nissan PU. Gets 25-30 mpg. He was considering getting some GMC or Chevy monster from the late 1980's. It averaged 12mpg. I had him "do the math" on just his commute to school (15 miles away) with gas at $4.

He saw how his part-time job would be almost all going to gas and insurance. Let's just say he saw the light and is looking for something more economical...

DAL357 said...

Kudos to you for being a wise, guiding hand to your son. If there were more men like you in this country, we might not have some of the social problems we endure.

It's going to take some time, maybe a generation, maybe less, before people change their notion of the basic function of a car: to get one from this point to that point. Doing it in style and luxury with an over-powered, fuel-sucking engine are just marketing tools and soon-to-be relics of an extended era of cheap fuel. Of course, people, especially the young (I was there once), have always looked for one-upsmanship in everything: clothes, computers, stereos, dogs, etc., but I don't think this will last much longer with automobiles, mainly because they are going to become increasingly expensive to operate, save for a vast new sea of light crude oil being discovered.