The 2005 Toyota Prius (Courtesy of Toyota)
We’ve always been a car-obsessed country. Two auto analysts, Danny Hakim of the New York Times and Walter McManus from the University of Michigan, help us take a look under the hood at the economics and psychology of our car culture, and how that’s changing as the price of gasoline goes up.
GELLERMAN: From the Jennifer and Ted Stanley Studios in Somerville, Massachusetts, this is Living on Earth. I’m Bruce Gellerman, sitting in for Steve Curwood. We love our cars. Last year alone, Americans bought 17 million of them and we drive 1.3 billion miles a day, burning up 312 billion gallons of fuel each year in the process. So, how much are you paying for a gallon these days? The spike in oil prices, foreign policy concerns and worries about air pollution and global warming have ignited interest in alternative fuels and vehicles, accelerating a trend in the auto industry. Just last month, Japanese car makers Toyota and Nissan announced their U.S. sales soared by 25 percent while the fortunes of GM and Ford continued to sink. We turn to Walter McMannus. He’s director of the Office for the Study of Automotive Transportation at the University of Michigan and Danny Hakim. He’s the Detroit bureau chief for the New York Times. Hakim talks about what kinds of cars Americans are buying.
HAKIM: You know, in the 1990s, the big sport utility vehicles and large pickup trucks really started to gain a lot of ground. This year and over the last year, they’ve been slipping a little bit and it seems like consumers are shifting to smaller SUVs. They’re a bit more fuel efficient and part of that is just driven by the fact that automakers have started to produce a lot more of those small SUVs.
GELLERMAN: Where is the auto industry in the United States right now in terms of fuel efficiency and just responding to this whole gasoline crisis?
HAKIM: I would not characterize two dollars and what is it now? Fifty cents; that’s not a crisis. It’s not higher than it was in the ‘70s and it’s also about right where it was in the ‘40s before it fell during the ‘50s. So it’s, we’ve seen prices this high before and people still bought vehicles. But if you look at what’s available in the marketplace, there’s a huge number of vehicles, you don’t have to go hybrid, you don’t have to go car. You can get an SUV that has good fuel economy and something like 20 percent of all entries, all entries in the market have fuel economy that’s better than twice the median fuel economy. And that means there’s lots of choices and all people have to do is buy them.
GELLERMAN: Well, if the Japanese were so surprised by the sales of SUVs, are American carmakers surprised by the incredible sales of hybrids?
HAKIM: Well, I wouldn’t say they’re incredible. I mean, so far there’s only a quarter of a million hybrid vehicles on the road in the U.S. And, you know, they sell more pickup trucks in a quarter than that so it’s not an incredible number. But it is having an incredible impact and I think what is surprising to the Detroit automakers is how quickly people have responded to the higher fuel prices. You know, the SUV sales being down 20 percent in the first quarter compared to a year ago, that’s very important. They’ve been saying for years people don’t care about fuel economy, they’ll keep buying these things, and they’re changing their behavior.
MCMANNUS: But I would say there is very much still a debate in Detroit about the effect of higher gas prices on consumer behavior. General Motors is still pretty adamant that its customers aren’t affected by gas prices and it’s really not affecting purchase decisions. And, by contrast to that, Ford cited higher gas prices as a key factor in its lower earnings forecast for this year. And Ford executives are quite open in saying that, you know fewer people are buying these large SUVs because of gas prices. And, you know, in this era of rising gas prices, they have a pretty big bet on large SUVs and pickup trucks. And I think there’s a fair number of analysts that think there’s a risk to that. You know, if gas prices are going to be rising for some time or are going to be sustained at a higher level, is it a good position to be in for Ford and GM to have so much of your business banked on some of the least fuel efficient vehicles?
GELLERMAN: But people are standing in line to buy one of these hybrid cars and Detroit has to literally give people money to buy one of their cars.
HAKIM: That giving away money, I mean, when GM says that people are not responding to the gas price, they’re being a little disingenuous because over the past three years, they’ve increased the incentives on SUVs and the pickup trucks much more than they’ve increased the incentives on anything else. When they say there’s no effective fuel economy, yeah, if you lower the price.
GELLERMAN: The average fuel efficiency of cars sold in the United States peaked in what? 1988?
GELLERMAN: It was a little bit over 22 miles per gallon and now it’s down to less than 21 miles a gallon. We’re going backwards.
MCMANNUS: Well, we’re not going backwards, we’re just not going forward. I mean, the decline within cars, within trucks, it’s gone up. The cars are more fuel-efficient than they were. Trucks are more fuel-efficient than they were. What’s happened is the shift, you know, the mix has shifted toward the trucks and so that’s why we’ve gone down.
HAKIM: We’ve really become a country of truck buyers to a large extent. In 1980, about 80 percent of the vehicles sold in the U.S., the light duty vehicles were passenger cars. Today, less than half of the vehicles sold in the U.S. are passenger cars.
GELLERMAN: Walter, looking down the road where is this industry going?
MCMANNUS: Well, for the U.S., the industry is saturated, I mean they’re fully mature. There’s, the growth has been very slow, in terms of the total vehicles that are sold. It’s not going to be huge, but interestingly enough it’s still an attractive investment opportunity for the Japanese, the Koreans and maybe some day, a Chinese company is not only going to sell cars here, but they’re going to assemble them and build them here. And at a time when the American traditional big three are shrinking and they’re closing plants and they’re scaling back, here the other companies are coming here.
GELLERMAN: Danny Hakim?
HAKIM: I do think you’ll start to see the big three, the American automakers produce more fuel efficient cars going forward because it’s going to be a competitive issue rather than an environmental issue. When Toyota and Honda were creating hybrids, General Motors was creating the Hummer brand. I think going forward they’re going to have to reconcile with some of these environmental issues and with regulations that are tightening up around the world from China to Canada. California is pushing a tough new global warming regulation for automobiles. I think this is just going to become a business reality.
GELLERMAN: Danny Hakim writes about the auto industry and is the Detroit bureau chief for the New York Times. Walter McMannus is the director of the Office for the Study of Automotive Transportation at the University of Michigan. I want to thank you both for being with us.
MCMANNUS: You’re welcome.
HAKIM: Thank you.