What a difference a few months make. Last summer, we saw a tremendous rise in gas prices putting the average price per gallon in most areas over $4.00. This was a major shock to most people, and those who had long commutes saw their budgets thrown out the window as gas consumed most of their money. But look at what’s happened in just the past six months. Gas prices have fallen significantly, and in most cases, by more than 50%. The average price at the pump these days is under $2.00 a gallon.
This is both good news and bad news. It’s great if you need to rely on your car and find that you spend a good deal of money on fuel, but it also underscores the troubles in the economy and the overall reduced demand for oil. It’s also having a negative impact on all of the progress that was starting to take shape in the summer. With higher gas prices, we saw a surge in purchases for hybrid vehicles, an uptick in mass-transit use, and a lot of discussion about alternative energy. Now, as gas prices have dropped to “normal” levels, a lot of this has faded.
In fact, many auto dealers are reporting that SUV sales are back on the rise. Just six months ago, a dealer couldn’t keep enough small cars and hybrids on the lot and were practically giving trucks and SUVs away. How is it that we’re so shortsighted that in just a few months we’re reverting to our old ways? From a story out in Virginia back in December:
According to national data, truck sales accounted for 52 percent of all vehicles purchased in November, as gas prices declined. That marks a 3 percent increase from October, when gas prices averaged more than $3 a gallon.
When gas prices hit $4 a gallon in July, national sales dropped 73 percent for the Chevy Trailblazer, 65 percent for the Hummer H3 and 21 percent for the Ford F-Series. But as gas gets cheaper, consumers swing back toward trucks.
In some parts of the country, full-sized Ford F-150s were in such high demand that dealers had to trade them across state lines.
But not all of the draw back to large vehicles stems from the lower gas prices. A lot of dealers still have a lot of inventory of these SUVs and trucks that didn’t sell well last year, and they are offering some good discounts as they try to clear the way for new models. Even so, how much of a deal are you actually getting? It doesn’t take long for you $4,000 discount to be wiped out when you’re paying $4.00 a gallon versus $2.00 on a vehicle that gets 50% worse gas mileage.
Not that I care what people choose to drive, but I find it interesting how six months ago, the people with big vehicles were unable to sell them and would do anything to save a few bucks at the pump. But now, you have people going back to the same vehicles, when it’s all but certain that gas prices will rise again.
So that brings me to this week’s poll question. Has cheaper gas changed any of your habits? Have you bought a new car, or do you drive more than you were a few months ago? Personally, nothing for us has changed. We still have the came cars, and still have the same length of a commute, so the lower prices have only resulted in more cash in my wallet each month. And I’m certainly not about to go out and buy another truck of SUV just because I can get a good deal and gas is cheap. But that’s just me. What about you?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.