(Reuters) - The rush by Americans to buy smaller, more fuel-efficient cars hit a speed bump in May.
New data compiled for Reuters shows the rush for vehicles with higher gas mileage is more restrained than three years ago, and is already beginning to fade, even as gasoline prices test their 2008 peaks and automakers tout an expanded line-up of gas-sipping cars, from plug-in Volts to 6-cylinder F-150s.
In May, the average fuel economy of new U.S. light vehicles actually fell for a second consecutive month to the lowest since January, even though gasoline prices only began to subside in the past few weeks, according to preliminary figures from online car-buying research website TrueCar.com.
That means that since January, average mileage has risen by just 1.4 percent to 21.9 miles per gallon; over the same period in 2008, it jumped by 6 percent to 21.2 mpg, according to TrueCar data compiled exclusively for Reuters. The firm will release its official May mileage figures next week.
To be sure, the slower rate of growth may be partly caused by the significant increase in overall efficiency in the intervening three years, a trend that has helped put a lid on gasoline use in the world's biggest oil consumer. Average efficiency is up by 2 mpg since the start of 2008.
And May sales also may have been influenced by the March 11 earthquake in Japan. Dealers had fewer cars on their lots last month with the Japan crisis keeping an estimated 40,000 new, smaller cars off the market, said Edmunds.com.
Even so, the sales trend jibes with other indications that the gas price required to change the behavior of U.S. consumers has risen over recent years, suggesting that world oil prices may have greater room to rise before they erode demand.
"By November of 2008, everybody had already gotten over $4 a gallon and were back to their old ways. It was a panic situation, people overreacted," AutoNation Inc (AN.N) Chief Executive Mike Jackson said. "People now feel they've already seen the movie. They've adjusted to it."
The price at which most car buyers would begin panicking and adjusting their buying behavior -- what Jackson calls the "freak-out number" -- has moved to $5 a gallon from 2008's $4.
This year's rise and fall in fuel economy mirrors the trend in 2008, when gasoline prices followed a similar pattern, and suggests that consumers may quickly revert to their vehicle of choice after a quick dash for more-efficient purchases.
Back then, sales of vehicles with higher gas mileage jumped from February through May, but declined thereafter, even before gasoline peaked in early July, according to the data. While the correlation is debatable, the outcome is important.
The industry's May fuel efficiency of 21.9 mpg was a retreat from April's 22.2 mpg, according to the TrueCar data based on actual sales and the Environmental Protection Agency's mileage ratings.
Drivers like Sara Lawler, a 42-year-old mother of four who drives a Suburban SUV, underlined the point.
"I drive this because I like the space and I've got a lot of kids," she said while filling up at a gas station near Whitestown, Indiana. "I'm not going to switch to a little toybox just because it doesn't use as much gas."
ONE MPG = 27,000 BARRELS A DAY
Improving the efficiency of new car purchases won't wean the United States off imported oil any time soon. But it may be an important indicator of consumer psychology that also affects how Americans drive, a much bigger factor for markets.
In practical terms, the fuel savings are small but not insignificant. TrueCar estimates that a 1-mpg improvement in estimated sales of 13 million vehicles would reduce consumption by 416 million gallons, or nearly 10 million barrels of oil.
That's equivalent to only about a day's worth of gasoline consumption in the United States. In trader terms it would shave about 27,000 barrels per day (bpd) off consumption; that would be enough to wipe out the expected rise in demand this year of just 16,000 bpd -- out of a total 10 million bpd.
Long-stalled fuel-economy standards have long been cited as one of the reasons that U.S. gasoline consumption has grown quickly; regulated Corporate Average Fuel Economy (CAFE) figures flatlined through most of the 1980s and 1990s up until 2005, as oil prices rose to $50 and beyond.
But the DOT expects sales-weighted CAFE figures to fall this year for the first time in five years, reinforcing the idea that it may take another significant jolt before more Americans shift away from their gas-guzzlers.
CAFE figures differ significantly from the TrueCar mpg figures due to the different ways of calculating efficiency.
"In general, gasoline demand is inelastic as prices fluctuate so consumers don't really change their (vehicle) purchases in the short term," says Sarah Emerson of Energy Security Analysis Inc (ESAI).
"People make a decision to buy a car every 10 years. If they believe prices are never going below $3 a gallon, their decision will lean toward more fuel efficient cars...but I'm not convinced that these numbers -- mileage and prices-- track each other" on a short-term basis.
Other indicators suggest consumers are taking this year's price rise in stride. Americans likely took just as many driving holidays this past Memorial Day weekend as they did a year ago, according to a AAA forecast.
The recent decline in average gasoline prices to the lowest in seven weeks may have helped, but at $3.79 a gallon, according to the Energy Department, gas is still $1.07 higher than a year ago.
'SUPER-SIZE ME' NOT
That said, no one expects May's disenchantment with smaller and more efficient vehicles to reverse the broader trend toward cars that will go further on a gallon of gas.
For one thing, federal standards imposed last year require automakers to achieve a fleet average of 35.5 mpg by 2016, and the Obama administration may double that by 2025.
For another, even the most bearish oil analyst doesn't envision another abrupt collapse in prices that would pull gasoline back under $2 a gallon.
In May 2008, the market for small and subcompact cars surged to almost 27 percent, according to Edmunds. However, as the pain at the pump eased -- prices fell to $1.61 a gallon by year end -- Americans returned to pickup trucks and sport-utility vehicles and the smaller cars saw their share slip back to 17.5 percent by December.
But more importantly times have changed, thanks to an improving economy, an expanding credit market, strong resale values for used vehicles and a far greater selection of cars that get over 30 and 40 miles per gallon, something that was more rare in 2008, analysts said.
"Before, they were stupid, dumb econoboxes that consumers bought purely for the price point or fuel efficiency," AutoNation's Jackson said. "Today, they're beautiful, exciting designs with great driving dynamics."
Even buyers unwilling to compromise their aesthetics or space are finding better options among more-familiar models.
More than half of the sales of Ford Motor Co's (F.N) best-selling model, the F-150 pickup truck, included V-6 engines in May. At the beginning of the year, Ford only sold V-8s in those trucks.
GM dumped 26 lbs of spare tire and jacking equipment on its new Chevy Cruze compact in favor of a tire inflater kit. And 41 percent of the company's May sales sported 4-cylinder engines, up from 26 percent a year ago.
AutoNation's Jackson pointed out almost half the vehicles sold in May were powered by 4-cylinder engines, something he called unbelievable. In 2005, that share was about 30 percent.
Consumers will not completely turn back the clock to revert to their old habits.
"That shock that happened in 2008 sort of jolted people back to the reality of 'Fuel prices, I can't count on them being $2 a gallon forever,'" said Margaret Brooks, the marketing director for General Motors Co's (GM.N) Chevrolet Sonic subcompact car launching this fall.
Consumers are now prioritizing needs "instead of super-sizing everything," she added.
New data compiled for Reuters shows the rush for vehicles with higher gas mileage is more restrained than three years ago, and is already beginning to fade, even as gasoline prices test their 2008 peaks and automakers tout an expanded line-up of gas-sipping cars, from plug-in Volts to 6-cylinder F-150s.
In May, the average fuel economy of new U.S. light vehicles actually fell for a second consecutive month to the lowest since January, even though gasoline prices only began to subside in the past few weeks, according to preliminary figures from online car-buying research website TrueCar.com.
That means that since January, average mileage has risen by just 1.4 percent to 21.9 miles per gallon; over the same period in 2008, it jumped by 6 percent to 21.2 mpg, according to TrueCar data compiled exclusively for Reuters. The firm will release its official May mileage figures next week.
To be sure, the slower rate of growth may be partly caused by the significant increase in overall efficiency in the intervening three years, a trend that has helped put a lid on gasoline use in the world's biggest oil consumer. Average efficiency is up by 2 mpg since the start of 2008.
And May sales also may have been influenced by the March 11 earthquake in Japan. Dealers had fewer cars on their lots last month with the Japan crisis keeping an estimated 40,000 new, smaller cars off the market, said Edmunds.com.
Even so, the sales trend jibes with other indications that the gas price required to change the behavior of U.S. consumers has risen over recent years, suggesting that world oil prices may have greater room to rise before they erode demand.
"By November of 2008, everybody had already gotten over $4 a gallon and were back to their old ways. It was a panic situation, people overreacted," AutoNation Inc (AN.N) Chief Executive Mike Jackson said. "People now feel they've already seen the movie. They've adjusted to it."
The price at which most car buyers would begin panicking and adjusting their buying behavior -- what Jackson calls the "freak-out number" -- has moved to $5 a gallon from 2008's $4.
This year's rise and fall in fuel economy mirrors the trend in 2008, when gasoline prices followed a similar pattern, and suggests that consumers may quickly revert to their vehicle of choice after a quick dash for more-efficient purchases.
Back then, sales of vehicles with higher gas mileage jumped from February through May, but declined thereafter, even before gasoline peaked in early July, according to the data. While the correlation is debatable, the outcome is important.
The industry's May fuel efficiency of 21.9 mpg was a retreat from April's 22.2 mpg, according to the TrueCar data based on actual sales and the Environmental Protection Agency's mileage ratings.
Drivers like Sara Lawler, a 42-year-old mother of four who drives a Suburban SUV, underlined the point.
"I drive this because I like the space and I've got a lot of kids," she said while filling up at a gas station near Whitestown, Indiana. "I'm not going to switch to a little toybox just because it doesn't use as much gas."
ONE MPG = 27,000 BARRELS A DAY
Improving the efficiency of new car purchases won't wean the United States off imported oil any time soon. But it may be an important indicator of consumer psychology that also affects how Americans drive, a much bigger factor for markets.
In practical terms, the fuel savings are small but not insignificant. TrueCar estimates that a 1-mpg improvement in estimated sales of 13 million vehicles would reduce consumption by 416 million gallons, or nearly 10 million barrels of oil.
That's equivalent to only about a day's worth of gasoline consumption in the United States. In trader terms it would shave about 27,000 barrels per day (bpd) off consumption; that would be enough to wipe out the expected rise in demand this year of just 16,000 bpd -- out of a total 10 million bpd.
Long-stalled fuel-economy standards have long been cited as one of the reasons that U.S. gasoline consumption has grown quickly; regulated Corporate Average Fuel Economy (CAFE) figures flatlined through most of the 1980s and 1990s up until 2005, as oil prices rose to $50 and beyond.
But the DOT expects sales-weighted CAFE figures to fall this year for the first time in five years, reinforcing the idea that it may take another significant jolt before more Americans shift away from their gas-guzzlers.
CAFE figures differ significantly from the TrueCar mpg figures due to the different ways of calculating efficiency.
"In general, gasoline demand is inelastic as prices fluctuate so consumers don't really change their (vehicle) purchases in the short term," says Sarah Emerson of Energy Security Analysis Inc (ESAI).
"People make a decision to buy a car every 10 years. If they believe prices are never going below $3 a gallon, their decision will lean toward more fuel efficient cars...but I'm not convinced that these numbers -- mileage and prices-- track each other" on a short-term basis.
Other indicators suggest consumers are taking this year's price rise in stride. Americans likely took just as many driving holidays this past Memorial Day weekend as they did a year ago, according to a AAA forecast.
The recent decline in average gasoline prices to the lowest in seven weeks may have helped, but at $3.79 a gallon, according to the Energy Department, gas is still $1.07 higher than a year ago.
'SUPER-SIZE ME' NOT
That said, no one expects May's disenchantment with smaller and more efficient vehicles to reverse the broader trend toward cars that will go further on a gallon of gas.
For one thing, federal standards imposed last year require automakers to achieve a fleet average of 35.5 mpg by 2016, and the Obama administration may double that by 2025.
For another, even the most bearish oil analyst doesn't envision another abrupt collapse in prices that would pull gasoline back under $2 a gallon.
In May 2008, the market for small and subcompact cars surged to almost 27 percent, according to Edmunds. However, as the pain at the pump eased -- prices fell to $1.61 a gallon by year end -- Americans returned to pickup trucks and sport-utility vehicles and the smaller cars saw their share slip back to 17.5 percent by December.
But more importantly times have changed, thanks to an improving economy, an expanding credit market, strong resale values for used vehicles and a far greater selection of cars that get over 30 and 40 miles per gallon, something that was more rare in 2008, analysts said.
"Before, they were stupid, dumb econoboxes that consumers bought purely for the price point or fuel efficiency," AutoNation's Jackson said. "Today, they're beautiful, exciting designs with great driving dynamics."
Even buyers unwilling to compromise their aesthetics or space are finding better options among more-familiar models.
More than half of the sales of Ford Motor Co's (F.N) best-selling model, the F-150 pickup truck, included V-6 engines in May. At the beginning of the year, Ford only sold V-8s in those trucks.
GM dumped 26 lbs of spare tire and jacking equipment on its new Chevy Cruze compact in favor of a tire inflater kit. And 41 percent of the company's May sales sported 4-cylinder engines, up from 26 percent a year ago.
AutoNation's Jackson pointed out almost half the vehicles sold in May were powered by 4-cylinder engines, something he called unbelievable. In 2005, that share was about 30 percent.
Consumers will not completely turn back the clock to revert to their old habits.
"That shock that happened in 2008 sort of jolted people back to the reality of 'Fuel prices, I can't count on them being $2 a gallon forever,'" said Margaret Brooks, the marketing director for General Motors Co's (GM.N) Chevrolet Sonic subcompact car launching this fall.
Consumers are now prioritizing needs "instead of super-sizing everything," she added.
