Cheap gas Detroit

Cheap Gas Means Drivers Want SUVs, but Detroit Must Sell Hybrids
December 23, 2013 – 01:20 pm

Where are the Hummers when we need them? With gas prices expected to drop as low as $2 per gallon in some parts of the U.S., the market seems primed for a (COST)-ready tank. The last Hummer rolled off (GM) assembly line in May 2010, with gas at an inflation-adjusted $3.04 per gallon. Gasoline sells for just $2.77 today, a 15 percent drop from a year ago.

Moving a giant chunk of metal from point A to point B hasn’t been this cheap in years, as global oil prices sink to $65 per barrel. Drivers have noticed: From August to September, the aggregate fuel economy of purchased cars dropped from 25.8 to 25.3 miles per gallon, according to the University of Michigan’s Transportation Research Institute. That metric didn’t budge in October, even though dealerships started selling next year’s models, which are generally more efficient—a sign that drivers have been choosing SUVs over small sedans. “Consumers react very quickly to changes in gas prices, especially if those changes are relatively rapid, ” said Michael Sivak, director of sustainable worldwide transportation at the University of Michigan.

These days, however, auto executives have to worry about more than just what drivers want. Detroit needs to meet increasingly stringent federal mileage thresholds that are calculated on a fleet-wide basis called Corporate Average Fuel Economy (CAFE, for short). That means for every Cadillac Escalade, GM should sell a Chevy Volt—or three of them—in order to avoid steep fines.

The big hurdle will come in 2025, when each company’s fleet of cars and light trucks sold in the U.S. will need to post an aggregate fuel economy of about 54.5 miles per gallon. If gas prices don’t steer customers to smaller, more efficient cars by that time, automakers will have to give them a nudge via the sticker prices they slap on the window. “The regulatory structure wants to force people into vehicles that consumers don’t rationally want to buy, ” said Steven Szakaly, chief economist at the National Automobile Dealers Association. “That’s a problem.”

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