gasoline consumption vs. SUV’s popularity

Demand for SUVs, hybrids and the price of gas

Virtually every time there is a new spike in gas prices, the death of the SUV is proclaimed. SUVs have long been demonized as gas-guzzling monstrosities, particularly those produced by American companies. However, the popularity of SUVs continues to climb, not just in the United States but around the world. While it is true that fuel-efficient hybrids have gained in popularity in some countries such as Japan and some states of the union such as California, overall the trend remains in favor of purchasing larger vehicles, both domestically and globally. Demand for hybrids spiked with a sharp upturn in the price of gas in 2005, but this was quickly forgotten when prices abated. Reducing carbon emissions must be a long-term concern for the environmentalist movement’s goals to be effective, but consumers tend to focus on the short-term. Overall, despite a short period of trendiness for the Prius and hybrid cars, demand for SUVs is growing, and there must be greater incentives for consumers to drive more fuel-efficient vehicles other than simply to expect that steadily rising gas prices will cause car choices to change.

Advantages and disadvantages: SUVs

Recently, President Obama did an extraordinary thing: he openly endorsed a particular type of car to the American public, speaking out against SUVs. “When you do decide to buy a new car, think about that we’re putting a whole bunch of money into the pockets of some folks who do not like us at all'[he said]…referring to oil-producing countries in the Middle East and North Africa” (Restuccia 2011). The federal government famously ‘bailed out’ the American auto industry, and one of the contingents of the bailout was more investment in green cars and green technology. “If you had to name a heyday for the American sports utility vehicle, most people would point to the ’90s, when gigantic SUVS such as the Hummer, Lincoln Navigator, and Ford Excursion were first sold to the public. According to CNN Money, 1 in 5 new cars sold in the late ’90s and early ’00s was an SUV” (Tuttle 2012). The era of the SUV is supposed to have ‘come and gone.’

However, that same year the president begged the American public to reconsider their purchasing habits, U.S. auto sales shot up 27%, “well above forecasts of about a 19% increase,” mainly thanks to a spike in sales of pickups, vans and SUVs. This was even in the face of higher gas prices. Truck sales alone rose 32% (Isidore 2011). Large, luxurious vehicles have traditionally been a sign of affluence for the American consumer, and once the economy began to improve, almost immediately Americans began to turn their attention to cars that would signal such values once again. In 2012, nearly 1 in 3 vehicles sold in America was SUV (Tuttle 2012). Compare this with the fact that hybrids make up only 2.5% of the new car market (Kim 2012).

In fact, the developing world has begun to adopt America’s tastes, now that it can afford to do so. In China, buying an SUV has become a sign that the driver can mimic American-style affluence in his or her consumption habits. Yet many of the reasons cited by Chinese drivers to buy SUVs are very similar to those cited by American drivers. “I have to drive my kid around practically non-stop on Saturday,'” said one mother “who ferries her eight-year-old son to Kung Fu and English classes on weekends to the Children’s Palace of Beijing before joining her friends for yoga. ‘It’s pretty tiring, but I feel very good driving my BMW X5 around'” (“Tiger moms craving SUVs drive next wave of Chinese demand: cars,” Bloomberg News, 2012). Mothers in China in particular cite how the commodious SUVs offer them additional room for shopping and children’s equipment. As more people are ‘living’ in their cars, the ability to have extra space is seen as a worthwhile investment.

SUVs are popular as both first and second vehicles in China. Many women see them as a sign of their new-found importance and leverage within an economy — and an economic sector — traditionally dominated by males. “SUV demand in China jumped 20% last year, more than triple the growth in total passenger-car deliveries” (“Tiger moms craving SUVs drive next wave of Chinese demand: cars,” Bloomberg News, 2012). SUV demand outpaces the demand for other types of cars, even though overall this area of the Chinese market has been in slight decline, thanks to some recent economic shakiness. Even Chinese residents who do not have time to take long excursions to the country say that they like the fact that possessing such a vehicle reminds them of the ability to access such a carefree lifestyle.

However, there is no question that driving an SUV is a costly luxury. Even with discounted prices, traditional gas-guzzling SUVs are extremely expensive to fuel and, financially speaking, it is not in the consumer’s long-term interest to purchase them. For example, “the front-wheel-drive Escape hybrid lists for $30,030… A rear-wheel-drive Expedition XLT with the 310-hp, 5.4-liter V-8 lists for…$27,245…Using the same gas price of $2.64 for a gallon of regular, the Expedition’s 16 mpg means it would cost $2,475 to drive 15,000 miles. The Escape hybrid should average 32 mpg and consume $1,238 a year for gas. At that rate, it will take only 2.2 years for the Escape hybrid to make up the difference” (Smith 2008).

However, it is important to note that the Escape is an SUV, not a small car. Although hybrid in technology, the Escape offers the same amenities of expanded size as a traditional gas-using SUV. Thus, the consumer ‘choice’ between a snub-nosed car and a full-sized vehicle may be a forced one. Not all SUVs are created alike and many gas-using SUVs are small and fuel-efficient — like the Toyota RAV4, for example, as well as the hybrid incarnations of the major brands. The (now sold out) Mazda CX-5 “starts at a little over $20K and gets over 30 mpg on the highway” (Tuttle 2012).

The reasons for the upsurge in popularity can be traced to several factors. First, “the newest SUVs aren’t the giant tanks from the ’90s” (Tuttle 2012). Secondly, all things are relative, and relatively speaking, the price of gas has been slowly going down. Even though it is high compared with previous eras, based upon recent consumer perceptions, it does not appear to be spiraling out of control.

Hybrids: Advantages and disadvantages

Hybrid cars experienced a brief upsurge in popularity when gas prices were very high, around 2005. However, “hybrid car sales have dipped in recent years…consumers have been reticent to embrace hybrid cars” (Pros and cons: Is a hybrid car right for you,” Sun Journal, 2011). While Toyota was much-praised for releasing the Prius, which is still synonymous with hybrid technology in many minds, the image of the car did more to boost the Japanese automobile manufacturer’s reputation, and Toyota’s most popular vehicles tend to be from its ‘standard’ lines of cars, such as its Camry.

Compared with even smaller cars that use pure gasoline, hybrids are better for the environment when one considers the fumes they emit while being driven. “A hybrid’s low emissions mean less greenhouse gases, which can include harmful carbon dioxide. Fewer emissions make for a healthier planet. For consumers whose chief concern is the environment, then hybrid cars are the way to go” (“Pros and cons: Is a hybrid car right for you,” Sun Journal, 2011). And they cost far less to drive, in terms of gas mileage, which can be particularly important for consumers in regions of the country like California, where commuting by car on a daily basis is a necessity, and traffic is often stop-and-go. Many places allow hybrid drivers to travel in the HOV (high-occupancy vehicle) lane, even when driving solo, which can also lessen the demands of a trying commute (“Pros and cons: Is a hybrid car right for you,” Sun Journal, 2011).

However, hybrids are not without some detriments. “Resale value of hybrid cars pales in comparison to that of traditional automobiles. Much of this lower resale value is thanks to the battery needed for hybrid cars. Hybrid car batteries typically need to be replaced once per decade” (“Pros and cons: Is a hybrid car right for you,” Sun Journal, 2011). And this is assuming a robust demand for hybrid cars. At present, the trend is downward, making the resale value of hybrids even more questionable.

For some consumers, hybrids possess serious safety concerns. “Safety is also a concern when considering a hybrid car. Hybrids use high-voltage batteries to operate, which can prove disastrous should an accident occur. Manufacturers insist this concern isn’t really a problem, as the batteries are designed to turn off in an accident” (“Pros and cons: Is a hybrid car right for you,” Sun Journal, 2011). However, most hybrids tend to be smaller and lighter vehicles, which may make drivers less safe if they are hit by a larger vehicle like an SUV.

For drivers who need large utility vehicles like trucks for works, hybrid technology has proved to be disappointing. Overall, the “the hybrid has a greatly-reduced towing capacity and payload, which is most likely due to the addition of the electric motor and batteries” (“Advantages and disadvantages of hybrid trucks,” Cars Direct, 2009). Given the higher initial purchase cost with reduced power, this has caused many to go with the non-hybrid option if they use their vehicles commercially and must rely on the vehicle in all weathers to do heavy-duty activities.

In terms of overall customer satisfaction, statistics indicate that it is relatively low for hybrids. “Only 35% of hybrid car owners bought a hybrid again when they purchased a new vehicle in 2011” (Kim 2012). Loyalty was low even in traditionally ‘green’ areas of the country like Oregon and California (which also have very high gas prices) and particularly low amongst Prius owners in comparison to other types of vehicles (Kim 2012).

Discussion

Several important points emerge from this comparison. The first is that not all of the ‘bugs’ regarding hybrid technology have been worked out. For many critical jobs which currently use trucks, hybrids are not practical. Also, consumers lose some power and other crucial components of the driving experience when using hybrids that they are reluctant to sacrifice. When given the choice, consumers often prefer SUVs, despite the cost of gas. And the newly-reformed SUVs of the present are a far cry from the older model’s fuel inefficiencies. Hybrids may be more cost-effective in the long run, but in the short run, they suffer both in terms of sticker price and upon performance in the eyes of the consumer.

There is no doubt that using hybrid cars is considerably advantageous to the environment (see Fig. 1) and that using hybrid technology from a macro societal standpoint is very beneficial. However, it is difficult to ask consumers to make decisions that they do not feel are in their best interest, particularly if those decisions are related to a high-priced vehicle. Expecting that increasing gas prices will cause consumers to turn from SUVs to smaller hybrid cars does not seem to be supported by current statistics, including the high cost of depreciation of hybrids which must be factored into consumer decision-making, as seen in one ‘pie chart’ created by someone debating the costs of buying a new vehicle (see Fig. 2). Thus, other governmental pressures must be used (such as tax credits, the use of HOV lanes, or other incentives) if there is a desire to fundamentally shift the way that Americans drive.

Conclusion

The Prius was developed in Japan only after many years of government subsidies and long efforts by Toyota — and it is still far from perfect. The political resistance President Obama faced after ‘bailing out’ Detroit indicates that support in the U.S. For a similar effort to produce an even better hybrid car would be unlikely, although the purely electric Chevy Volt of GM could be viewed as an American counterpart to the Prius. But sales of the Volt have been slow, and it also has a high sticker price.

After a hiatus after low demand, GM has begun to produce the Volt once again. “A new Low Emissions Package offered on 2012 Chevy Volts sold in California offers upgrades that reduce exhaust emissions, making the Volt eligible for access to California’s carpool lanes. It also adds a $1,500 California state tax rebate. The Volt retails for $32,495 after a $7,500 federal tax rebate” (Crothers 2012). But this price tag still puts it out of the range of many consumers, who are very leery about a premium-priced ‘plug-in’ car.

Until technology improves considerably and prices of hybrids drop, selling the Volt and even the Prius will be a challenge. More government investment in the car industry to make this happen seems required, since Americans car manufacturers do not have the funds or the market demand to justify additional R&D, given the poor showing of these cars. Consumers and manufacturers focus on the short-term, but to reduce emissions requires a very long-term focus.

Appendix

Fig 1: Evidence of reduced CO2 burning with hybrid car (Image courtesy of Tree Hugger).

Figure 2: Perceived expense of hybrid cars (Image courtesy of Greenie & Techie).

Works Cited

“Advantages and disadvantages of hybrid trucks.” Cars Direct. 22 Dec 2009. [10 Dec 2012]

http://www.carsdirect.com/green-cars/hybrid-trucks-advantages-and-disadvantages

Crothers, Brooke. “A new lease on life for the Chevy Volt as demand picks up.” CNET.

8 Apr 2012. [10 Dec 2012] http://news.cnet.com/8301-13924_3-57411096-64/a-new-lease-on-life-for-chevy-volt-as-demand-picks-up/

“Greenie & Techie: Path to my first car, part IV.” 12 Jun 2008. [10 Dec 2012]

http://undressmegently.blogspot.com/2008/06/path-to-my-first-car-part-4.html

Isidore, Chris. “What gas spike? CNN.” 1 March 2011. [10 Dec 2012]

http://money.cnn.com/2011/03/01/news/companies/gas_price_hike_impact_on_february_auto_sales/index.htm

Kim, Susannah. “Hybrid car owners not buying again.” ABC. 10 Apr 2012.

[10 Dec 2012] http://abcnews.go.com/blogs/business/2012/04/hybrid-car-owners-not-loyal-to-technology/

“Pros and cons: Is a hybrid car right for you?” Sun Journal. 19 Feb 2011. [10 Dec 2012]

http://www.sunjournal.com/prez-day-2011/story/971196

Restuccia, Andrew. “Obama: Think about ditching those gas-guzzling SUVs.” The Hill.

2011. [10 Dec 2012] http://thehill.com/blogs/e2-wire/e2-wire/157263-obama-trade-in-your-suvs-for-more-fuel-efficient-vehicles

Smith, Steven Cole. “Gas-guzzling SUVs: Bombs or bargains?” Car and Driver. 2008.

[10 Dec 2012] http://www.caranddriver.com/features/gas-guzzling-suvs-bombs-or-bargains-feature

Smith, Michael Richard. Plug-in hybrid cars.” 15 Apr 2008. Tree Hugger. [10 Dec 2012]

http://www.treehugger.com/cars/plug-in-hybrid-cars-chart-of-co2-emissions-ranked-by-power-source.html

“Tiger moms craving SUVs drive next wave of Chinese demand: cars.” Bloomberg News.

19 Apr 2012. [10 Dec 2012] Retrieved: http://www.bloomberg.com/news/2012-04 — craving-suvs-drive-next-wave-of-chinese-demand-cars.html

Tuttle, Brad. “How gas prices haven’t affected SUV sales.” Time. 18 May 2012. [10 Dec 2012]

http://business.time.com/2012/05/18/how-the-heck-are-suv-sales-hot-again/

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