Transportation Hit Tipping Point As Gasoline Breached $4 A Gallon

Published on Tuesday, 29 July 2008 05:00

Written by Constantine Kambanis, Raghavan Mayur And Bert Holland In Investor's Business Daily

When Barack Obama told environmentally conscious voters earlier this summer that "we can't drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times," he probably didn't realize how close he already was to the truth.

According to our latest consumer survey, Americans are already changing their ways - but not because of Obama. They are changing because they are tiring of paying so much money each time they fill up at the gas station.

According to our survey, conducted jointly by Auto Futures Group and TechnoMetrica, the vast majority of consumers (87%) say they are likely to buy a car that is more fuel- efficient than their current model the next time they're in the market for a new vehicle.

What's more, four out of five (80%) Americans are bundling errands into fewer trips than before, almost three of four (71%) are using their family's most fuel- efficient vehicle and two of three (66%) are driving less than they used to.

Looking three years down the road, Americans expect the average price of a gallon of gasoline to reach $6.14.

One in four think it will be above $7 per gallon and one in eight expect to be paying more than $8 a gallon.

If Americans are already making significant changes with gasoline at $4 a gallon, we can only imagine the sort of changes that consumers will accept if gasoline were to hit $6, $7 or even $8.

It's even conceivable that U.S. roads will begin to look a lot more like Europe's, where super-cheap gas has never been available.

Europe lacks the suburban sprawl and far-flung shopping centers found in America and, on per-capita basis, has fewer taxi-moms ferrying their kids everywhere. Public transportation is an efficient alternative and awareness of global warming and the need to reduce fossil-fuel consumption is widespread.

As a result, the SUV, light truck, minivan and automobile lifestyles are all relative strangers.

According to our survey, the likelihood of Americans purchasing a SUV falls as gasoline prices rise.

About 30% of American consumers now own a SUV. We asked them how likely they'd be to buy another SUV at current gasoline prices, at $6 per gallon and at $8 per gallon.

At current prices, 15% would consider another SUV, but that drops to 7% at $6 a gallon and 6% at $8.

On the flip side, the likelihood of their purchasing a compact or subcompact car increases steadily with increasing gasoline prices. Current ownership of subcompacts is 8%, and 11% will consider buying one the next time they're in the market for a new vehicle. If gas prices were to hit $6 a gallon, 22% of Americans would consider a subcompact, and at $8 a gallon 30% would consider one.

Compact cars go from 26% at current prices to 34% at $8 a gallon.

So with far fewer SUVs on the road and a drastic increase in the number of compact and subcompact cars, it's safe to say that American roads will, indeed, look a lot more like their European counterparts.

While it's premature to say that gasoline engines are going to become extinct, Americans are beginning to give them a cold shoulder.

For the past six quarters, we've been asking Americans how likely they are to consider various engine types the next time they are in the market to purchase or lease a new vehicle.

Over the first five quarters, a stable 91% to 93% said that they'd likely consider a gasoline engine. But that was before gas broke $4 a gallon. This time around, just 76% answered "gasoline." Statistically this is a huge drop.

Our latest study shows that 80% of Americans say they will consider at least one type of alternative-fuel vehicle the next time they are ready to buy a new vehicle. That's good for alternative-fuel vehicles, and perhaps the beginning of a long goodbye to gasoline's dominance of the passenger vehicle market.

Next: Where did Detroit's Big Three go wrong?

Kambanis is a senior analyst and Mayur is president of TechnoMetrica Market Intelligence, IBD's polling partner. Holland is a senior partner with the Auto Futures Group.

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