The Market Works

Filed under: Energy, Environmentalism — marc moore on May 2, 2008 @ 2:43 pm CEST

Many of the same people who champion fuel-efficient, (relatively) environmentally-friendly automobiles are at the front lines calling for the government to "do something" about high gasoline prices. For these people, the news that higher gas prices are driving an unmistakable shift to the very cars they’d like us to drive must present a bit of a puzzle. Which agenda item to support? What a conundrum. But the truth is that their efforts were never needed. Free markets take care of rising prices and increased demand for commodities quite nicely, thank you.

(via memeorandum)

From the Times:

The switch to smaller, more fuel-efficient vehicles has been building in recent years, but has accelerated recently with the advent of $3.50-a-gallon gas. At the same time, sales of pickup trucks and large sport utility vehicles have dropped sharply.

In another first, fuel-sipping four-cylinder engines surpassed six-cylinder models in popularity in April.

…

Sales of Toyota’s subcompact Yaris increased 46 percent, and Honda’s tiny Fit had a record month. Ford’s compact Focus model jumped 32 percent in April from a year earlier. All those models are rated at more than 30 miles per gallon for highway driving.

How did this miracle, the changing of Americans’ auto-purchasing habits, which decades of environmentalism failed to shift a single iota, take place? Dave Strom knows.

Dave Strom of South Boston, Va., recently bought a tiny Smart ForTwo Passion Coupe, made by Daimler, the German automaker.

Mr. Strom also owns a pickup truck, which he uses mainly to haul his boat. When he runs errands, he drives his Smart, which he says is getting 45 miles a gallon.

“I had to smile the other day when I filled my tank for $18 and the guy next to me had a Ford Explorer and the pump was clicking past $80,” said Mr. Strom, a 66-year-old retired manager of a Chevrolet dealership.

It’s simple. Just get the heck out of the way, people, and the market takes care of itself.

In this case, many people recognize that the days of $1.50 gasoline are gone forever. As our car payments on our SUVs and pickups wind down, I expect this trend to continue. And that’s a good thing, despite protests over higher fuel costs.

Denying reality is foolish and that’s exactly what Hillary and McCain are doing by supporting the suspension of the federal gas tax. Prices are what they are for a reason; wishing and legislating won’t change that. And the people who are buying small cars despite their preference for larger vehicles know that.

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1 Kevin H

May 2, 2008 @ 7:02 pm CEST

Although Toyota and Honda are truely international companies, they are strong evidence that smart government regulation can be good for business. Japanese fuel efficiency standards have seen significant regulation in the 80’s and 90’s, leading to a fleet of very efficient Japanese cars that are in high demand.

Markets are extremely good at reacting to situations, but not so good at preparing for situations in advance. The roll of smart government should be always forward looking, trying to deal with problem 10 or 20 years down the road before they turn in to a problem for the market to fix.

2 ChenZhen

May 2, 2008 @ 7:06 pm CEST

I work at a dealership, and I’m amazed at the change in the market in just the last 6 months. We can’t give these trucks and SUV’s away, and the cars that many people would have previously laughed and pointed at (like a Chevy Aveo) are now holding their values and flying off the lot. People are doing the math at this point, and the cost of ownership of these V8 trucks is getting outta hand. The problem for those who already own one is that the market is so soft on them that they won’t get squat for it on a trade-in, so you’ll see more and more people flipped upside down on their payments, perhaps to the point that they can’t get out of it even if they wanted to. It’s rough out there, let me tell ya.