3 Ways Gas Prices Are Affecting Vehicle Sales

By 
Samantha Oller, Senior Editor/Fuels, CSP

Low gas prices

CHICAGO -- The past year of low gasoline prices has transformed the U.S. vehicle market. Consumers paid $39 billion less for fuel in 2016 vs. 2015, according to GasBuddy, and these savings heavily influenced their buying decisions.

Read on for three effects low gas prices had on the vehicle market, and a potential bump in the road for 2017 ...

Vehicle sales hit record high

Car dealership

Sales of light-duty vehicles (LDV) hit a record high or 17.5 million in 2016, according to data from Ward’s Automotive, beating the previous high of 17.4 million in 2015. Sales of LDVs have risen for each of the past seven years and are nearly 70% higher than during the Great Recession. In 2009, only 10.3 million LDVs were sold.

 

Trucks and SUVs gain share

Ford Edge SUV

Trucks and SUVs could grab two-thirds of LDV sales in 2017, after their market share rose to nearly 60% in 2016. According to Reuters, automakers plan to add more SUVs to their vehicle lineups to meet growing demand. Some with overcapacity for manufacturing sedans have had to change course—for example, Ford’s recent announcement that it was abandoning plans to build a factory in Mexico that would have built sedans.

"The sedan market is under real pressure," Lex Kerssemakers, CEO of Volvo Cars USA, told Reuters. "If you don't have SUVs in all categories, you are in serious difficulty." 

 

Fuel economy erodes

Fuel economy window sticker

The average fuel economy of new vehicles sold in 2016 was 25.2 miles per gallon (mpg), down 0.1 mpg from 2015, according to the University of Michigan Transportation Research Institute (UMTRI). For December the window-sticker value was 24.9 mpg, off 0.1 mpg from November. According to Michael Sivak, director of sustainable worldwide transportation at the Ann Arbor, Mich.-based UMTRI, the drop likely reflects truck and SUV's growing share of light-duty vehicles sold.

While December 2016’s average is 4.8 mpg higher than in October 2007, when UMTRI first began monitoring fuel economy, it is 0.6 mpg off the August 2014 peak of 25.5 mpg. 

Higher prices for 2017

Paying for gas

Forecasts for 2017 call for higher retail gasoline prices, thanks in part to the recent production cuts by the Organization of the Petroleum Exporting Countries (OPEC). GasBuddy is projecting a 36-cent-per-gallon increase in the national retail average for 2017.

Patrick DeHaan, senior petroleum analyst for Boston-based GasBuddy, noted that this could weigh on buyers of big trucks and SUVs. In a blog post, he cited Ford’s plans to reintroduce its Bronco SUV, which had a fuel economy of only 14 mpg (city) in 1996, the last year it was sold. Assuming you drive 15,000 miles on this ’96 Bronco in 2017, that 36-CPG increase in gas prices could equate to at least an extra $360 in fuel costs.

While automakers have greatly improved the fuel economy of their overall fleets since 1996, it is still possible to find small and large SUVs and light-duty trucks not far from this 14-mpg point. In its ranking of least efficient 2017 vehicles, the U.S. Department of Energy lists several in the 12-to-15-mpg range.