If gas goes up, big cars might still be the rage. Here’s why

Source: Camille von Kaenel, E&E News reporter • Posted: Monday, April 23, 2018

When gas prices rose to $4 10 years ago, Americans flocked to smaller and more fuel-efficient cars.

But would it happen again? Analysts don’t think so, suggesting that future spikes in pump prices might not turn Americans away from bigger cars.

Here’s why: Even today’s biggest vehicles offer fuel economy rivaling that of smaller cars a dozen years ago. That’s because the government mandated strict fuel standards under President Obama, helping cars and trucks travel about 6 miles farther on a gallon of gas, on average. The Trump administration is weakening those rules.

So if gas prices rise sharply, it would cost motorists less than a decade ago, according to analysts. So they have less incentive to trade their trucks for a cleaner car.

“This is more of a structural thing in the U.S. auto market,” said Sam Ori, the executive director at the Energy Policy Institute at the University of Chicago. “People care about efficiency, but their behavior doesn’t show that, not on a national basis.”

Sales on the showroom floor bear this out. Even though fuel prices are inching up for the first time in many years, the move toward trucks is still strong, according to the latest sales data. In that way, President Trump’s move to roll back Obama-era fuel economy standards, which sought to make cars travel 54.5 mpg by 2025, might not change the type of vehicles that people buy. (In the real world, Obama’s standards would result in about 36 mpg.)

“It’s hard to paint a scenario where the oil market dynamics have a big impact on how people think about these rules in the real world in the near term,” Ori said.

Few analysts predict that gas prices will shoot up to $4 anytime soon, save for a geopolitical crisis. Changing current buying habits would take a dramatic increase in gas prices over a long period of time, they say. That’s unlikely, for now.

‘This program is like a surfer’

There’s a long history of the federal government loosening and tightening fuel standards to reflect gas prices.

The first fuel economy rules administered by the Transportation Department came about in the 1970s following the oil crisis. Congress later froze the rules in 1990. They were tightened again in 2007 under the Bush administration, when gas prices were high and cars were outselling trucks. Then, in 2009, Obama oversaw the largest increase in miles per gallon in a historic deal with EPA, the Transportation Department and California.

But with gas prices now below $3 for several years, Americans have bought light-duty trucks and SUVs at record-high levels, boosting their share to nearly two-thirds of all sales.

EPA Administrator Scott Pruitt agreed with automakers to loosen the targets last month, with a more detailed proposal to come.

“This program is like a surfer. The standards rise when gas prices are rising,” said Bob McNally, a former President George W. Bush energy aide and now president of the consulting firm Rapidan Energy Group. “But when consumers want to buy heavier cars, fuel economy regulations don’t get in the way. Congress or the administration steps in and eases them.”

Obama’s goal of doubling fuel efficiency by 2025 is already out of reach.

And automakers won’t even fall out of compliance: EPA staff has found that manufacturers could meet the standards with existing and upcoming technology, and with special credits, for every category of vehicle through 2025.

Paradoxical efficiency

In the future, swings in car and truck sales might not be as dramatic, according to analysts.

Drivers these days are not as likely to be shocked by high gas prices as 10 years ago because vehicle technology has improved to the point where people are spending less on gas in the long run. The average new vehicle in 2008 would go 20 mpg. Now they go 25 mpg.

That means Americans who are looking to replace their 10-year-old car can find a pickup truck or an SUV that offers more space while burning about the same amount of gas — or even less.

For that, you can thank federal fuel standards. Manufacturers have boosted efficiency most in vehicles that started out with poor mileage: trucks and SUVs.

A Ford F-150 got 16 mpg 10 years ago; the newest model now can get 22 mpg. Compare that to smaller cars, and trucks give motorists a bigger leap in savings. A Honda Civic got 29 mpg in 2008. Now it gets 33 mpg.

“I wouldn’t expect things to change very much,” said Kevin Book of ClearView Energy Partners LLC. “People who have a new truck that is more efficient than their old car or truck will be more insensitive to price changes in the short run. It’s hard to change your life.”

The standards have also incentivized manufacturers to focus on vehicles on the heavier end of the spectrum — which also happen to be the best-sellers. Each category of vehicle, by weight and size, has different targets determined by a complicated formula. Targets for heavier vehicles are not as daunting as those for small, light cars.

“It’s really a light standard,” McNally said. “There’s no penalty for buying a less efficient car. It’s sort of like elastic pants, they grow bigger the bigger you are.”

Ori calls this the “light truck loophole.”

“For any given footprint, you’re better off building a truck than a car,” he said.

Over the past decade or so, manufacturers have started offering more crossovers. Vehicles like the Ford Explorer, Toyota Highlander or Jeep Grand Cherokee are built using a car frame. That gives them higher fuel efficiency while offering the perks of an SUV.

Americans responded by making them best-sellers.