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With oil prices plummeting around the world, gasoline is cheaper than it's been in years — hitting an average of $2.64 per gallon this week in the United States. And, at the same time, SUVs are coming back in style.
The Guardian reports that US sales of new SUVs and pick-up trucks rose 9.6 percent in November (compared with a 1.3 percent rise in overall vehicle sales). At the same time, fewer Americans are buying small cars. Sales of Ford's Navigator SUV were up 91.5 percent over this time last year, according to the Financial Times. By contrast, sales of Ford's smaller and popular Fusion were down 11.3 percent.
The same thing is happening in the much larger used-car market, where prices for mid-sized SUVs, large SUVs, and large trucks have all risen 10 percent or more over the last year. "Low gas prices has increased consumer demand for these utilitarian vehicles," note the car analysts at Edmunds.com.
Now, these new SUVs aren't all the same as the truck-like behemoths that were popular back in the early 2000s. Many modern SUVs and crossovers tend to be more fuel-efficient and handle more like cars — while still having lots of space. US automakers are increasingly putting out more efficient vehicles of all types, thanks in part to stricter fuel-economy standards. Over at Bloomberg, Edward Niedermeyer argues that Americans won't necessarily flock to the gas-guzzlers of old.
US fuel economy is now stagnating
Still, the move away from smaller cars toward SUVs already seems to be having an effect. Fuel economy in the United States is now starting to stagnate after improving during the years when gasoline was expensive. Here are the numbers for new vehicles:
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(University of Michigan Transportation Research Institute)
Historically, this tends to happens whenever gasoline prices make wild swings. One 2012 study from the University of Michigan's Transportation Research Institute found that when gas prices spike, consumers quickly go out and buy smaller, more efficient cars. But when prices drop, they start moving back to SUVs — since they can afford bigger, roomier vehicles.
How big will this effect be? It's hard to say. Over the past few years, oil consumption in the United States has been falling — as people bought more-efficient vehicles and drove less. Some of that was driven by high gas prices, some by efficiency regulations, and some of it driven by cultural changes (more young people are moving to cities, for instance). Now that gas is getting cheaper, it remains to be seen how much consumption will pick back up.
Gas prices may not stay low forever
Another thing to keep in mind, meanwhile, is that a car can last for 10 years or more, while gas prices aren't guaranteed to stay low that long. And over the past decade, as this video shows, wild swings in oil prices have become pretty commonplace:
Something similar could happen again this time around. If new conflicts break out in the Middle East, say, or if China and Europe start growing rapidly again, oil prices could easily shoot back up.
Will this affect Obama's fuel efficiency rules?
If gas prices do stay low for an extended period of time, that could create a conflict over existing fuel-efficiency rules. The Obama administration has put in place fuel-economy standards that will require automakers to keep improving the average fuel-efficiency of their fleet between now and 2025 — at which point the standard will reach 54.5 miles per gallon (which translates to around 35 miles per gallon on the road):
Department of Transportation
These rules help explain why many of the newer SUVs are a lot more efficient than the truck-like SUVs of old. But these rules are also coming up for a midterm review in 2017. And if gas prices stay low and consumers aren't buying these smaller, more efficient cars, manufacturers could well ask to alter the requirements.
* Update: Added a paragraph noting the difference between newer SUVs and the SUVs of the 2000s.
Further reading
Cars are more fuel efficient than ever. Here's why.
Oil prices keep plummeting as OPEC starts a price war with the US
What the huge drop in gasoline prices means for America
How far do oil prices have to fall to throttle the US shale boom?
Right now is a perfect time to raise the gas tax
