The Curse of Cheap Gasoline in America
The dilemma bedeviling America’s automobile manufacturers can be seen at the Detroit Motor Show. They invested heavily in fuel-efficiency, but now cheap gasoline is keeping buyers away from economy models. They want to keep driving large cars.
The Detroit Motor Show, traditionally heralding the new model year for cars in the United States, opens in a few days. This year, Detroit is a sad story. North American automobile production fell by 2.5 million vehicles to a total of 13 million last year, and 2009 threatens further reductions. The new fuel-efficient models were supposed to be the best hope for rescuing the industry.
Small cars like the Ford Fiesta will soon begin rolling off American production lines. New hybrid models, not only from Toyota and Honda but also from BMW and Mercedes are already being displayed at auto shows. New engines, like Volvo’s 1.6 liter diesel that powers their mid-size S60 and gets 47MPG, are being developed to lead the new way forward in the market. These new models are sitting, of all places, in Detroit where previously there was only room to display gas guzzlers. But will manufacturers’ investments in smaller, more fuel-efficient cars be worth it in America?
Gas guzzlers will stay on the road
One gallon of regular gasoline once again costs less than $1.80 which translates into $0.47 a liter. That’s 37 Euro cents. (Translator’s note: the current cost of a liter of regular gasoline at my filling station is 1.14 Euro, or roughly three times the U.S. price). That’s the automobile manufacturer’s dilemma. They invested huge sums in alternatives to gas guzzlers, and meanwhile consumers are being coddled with low gasoline prices. That puts a big brake on sales of fuel-efficient models. With such low prices, hardly anyone is shopping for an economy car these days, but because consumers don’t know how long fuel prices will stay low, nobody’s willing to invest in a gas guzzler, either. The only alternative is to keep driving the gas guzzlers they already have. Used car prices are already in the cellar and firms leasing cars to customers are doing everything they can to extend those leases, thereby reducing their residual value losses. That also places a burden on new car sales, so there’s not much to be happy about in Detroit these days.
This year’s Detroit Motor Show is beset by a double dilemma. Drastic production cutbacks hang over the exhibition halls like a sword of Damocles. At the same time, fuel-efficient cars are saddled with a dual handicap: recession worries among consumers and low gasoline prices. The world’s most important automobile market is in for continued collapse this year as well. Our prognosis is that sales figures will fall by an additional one million units to a yearly total of 12.3 million.
The Detroit Motor Show, traditionally heralding the new model year for cars in the United States, opens in a few days. This year, Detroit is a sad story. North American automobile production fell by 2.5 million vehicles to a total of 13 million last year, and 2009 threatens further reductions. The new fuel-efficient models were supposed to be the best hope for rescuing the industry.
Small cars like the Ford Fiesta will soon begin rolling off American production lines. New hybrid models, not only from Toyota and Honda but also from BMW and Mercedes are already being displayed at auto shows. New engines, like Volvo’s 1.6 liter diesel that powers their mid-size S60 and gets 47MPG, are being developed to lead the new way forward in the market. These new models are sitting, of all places, in Detroit where previously there was only room to display gas guzzlers. But will manufacturers’ investments in smaller, more fuel-efficient cars be worth it in America?
Gas guzzlers will stay on the road
One gallon of regular gasoline once again costs less than $1.80 which translates into $0.47 a liter. That’s 37 Euro cents. (Translator’s note: the current cost of a liter of regular gasoline at my filling station is 1.14 Euro, or roughly three times the U.S. price). That’s the automobile manufacturer’s dilemma. They invested huge sums in alternatives to gas guzzlers, and meanwhile consumers are being coddled with low gasoline prices. That puts a big brake on sales of fuel-efficient models. With such low prices, hardly anyone is shopping for an economy car these days, but because consumers don’t know how long fuel prices will stay low, nobody’s willing to invest in a gas guzzler, either. The only alternative is to keep driving the gas guzzlers they already have. Used car prices are already in the cellar and firms leasing cars to customers are doing everything they can to extend those leases, thereby reducing their residual value losses. That also places a burden on new car sales, so there’s not much to be happy about in Detroit these days.
This year’s Detroit Motor Show is beset by a double dilemma. Drastic production cutbacks hang over the exhibition halls like a sword of Damocles. At the same time, fuel-efficient cars are saddled with a dual handicap: recession worries among consumers and low gasoline prices. The world’s most important automobile market is in for continued collapse this year as well. Our prognosis is that sales figures will fall by an additional one million units to a yearly total of 12.3 million.
Try comparing the gas prices without any taxes and you will find them very close!
Closer, to be sure, but still a significant difference. I paid €1.06 per liter yesterday for diesel. At the current exchange rate, that’s $5.44 per US gallon. Fuel pumps in Germany bear the notice that tax on each liter amounts to €.86, or about $3.25 per gallon. That brings my dollar outlay, minus tax, to about $2.19 a gallon. An internet search tells me fuel prices in the US on 5 January averaged about $1.68 per gallon while average taxes were about $.48 a gallon. That’s $1.20 a gallon without taxes nationwide in the US compared to $2.19 per gallon here in Germany, about a dollar a gallon less over there.
Taxes on fuel here are about 80% of the pump price, while they’re only 38% on average in the US.
I’ve never minded the higher fuel prices here because the revenue collected supports a well maintained infrastructure of roads, bridges and tunnels and new construction is proceeding apace throughout Germany.