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Page added on June 29, 2014
America’s Oil Weapon: The Automobile
Higher oil prices threaten the U.S. economy, but not like they used to. North Dakota is a reason for that. Changes in America’s car industry and driving habits are bigger ones.
Amid sectarian violence in Iraq, oil prices have risen, and it isn’t hard to imagine them going higher. That is unwelcome for a U.S. economy still struggling to find its footing. Starting with the downturn set off by 1973’s oil shock, higher energy prices have been a constant factor in U.S. recessions.
But the economy isn’t what it was in 1973, or even in 2007, when rising gasoline prices added to strains on U.S. household spending power.
One difference is the shale boom. The U.S. now produces over eight million barrels of oil a day, up from five million in 2007. So when Americans pay more at the pump, more of what they pay ends up back in the pockets of other Americans. A shift in U.S. energy consumption toward abundant natural gas provides an additional offset.
But one of the biggest ways high energy prices affect the economy is through consumers’ car-buying behavior. When gasoline prices rise sharply, overall vehicle sales go down. And because of the major role the automobile industry plays in employment, those sales declines can pack a lot of oomph. Think not just of the 2.5 million people who work at motor vehicle and parts manufacturers and dealerships, but the truckers who haul cars and waiters and bartenders who work near auto plants.
What has historically intensified this effect is that U.S. car companies’ vehicle offerings have tended to have lower fuel economy than those of foreign counterparts. And because it is sales of the least efficient cars and light trucks that get hit hardest by higher gasoline prices, while sales of cars with the best fuel economy fare better, it is the U.S. auto industry, and all the workers and businesses that depend on it, that tends to bear the brunt of the hit.
But with more efficient offerings than in the past, U.S. car makers may capture more of the consumer shift toward higher-fuel-economy vehicles if gasoline rises further. The average vehicle sold in May got 25.6 miles per gallon, according to the University of Michigan Transportation Research Institute, versus 20.1 mpg when the recession began. In a report last week, consultant Wood Mackenzie forecast that U.S. road-fuel demand would drop 10% by 2030 despite vehicle numbers rising by 17%.
Moreover, foreign auto makers have expanded their American manufacturing presence, so more of any sales increase they see as a result of higher gasoline prices will end up in U.S. workers’ paychecks.
Meanwhile, despite a 5% increase in the U.S. population, Federal Highway Administration data show that the number of miles traveled on highways in the year ended April was 2% lower than in the 12 months before the recession. Combine changing driving patterns with efficiency gains, and the American consumer is gaining a useful umbrella against global oil’s storms.
10 Comments on "America’s Oil Weapon: The Automobile"
Perk Earl on Sun, 29th Jun 2014 2:08 pm
Rah rah sis boom bah, we got the shale oil and now it all makes sense and works perfectly. Now for my next trick I’ll make the national debt disappear.
rockman on Sun, 29th Jun 2014 2:37 pm
“So when Americans pay more at the pump, more of what they pay ends up back in the pockets of other Americans”. The current US oil trade deficit is higher today the when we were producing 5 million bopd. We might be importing less oil for a number of reasons but we are sending more $’s overseas then when oil was selling $35/bbl. IOW more of what we pay at the pump is heading overseas then before.
And yes: new cars are more efficient. OTOH the average mpg of the EXISTING US auto fleets has improved a whopping 1% in the last several years. And not 1% per year…1% total for the entire period. Eventually as the older vehicles are retired the fleet average will significantly improve. But we ain’t there yet.
Nony on Sun, 29th Jun 2014 3:02 pm
$100/bbl oil is bad. It’s only a teeny teeny bit less bad to have some of it being made in the US. But I would gladly, GLADLY trade 20/bbl by the Saudis opening the taps for Harold Hamm, the Bakken, Mark Papa and all that jazz.
P.s. And it would be 120/bbl if we didn’t have the shale. It’s a fungible product with world pricing, especially for refined products. And has relatively inelastic demand. that 3 million bbls/day from new US makes a difference…we would be even more screwed without it.
Steve on Sun, 29th Jun 2014 3:50 pm
“And has relatively inelastic demand. that 3 million bbls/day from new US makes a difference…we would be even more screwed without it.” And we will be even more screwed without it when it peaks!!! Which is not that far into the future no matter who you talk to! I don’t know an easy way out of this except for a nice long depression, World Wars, famine, and then some virus to wipe out a large amount of the population….
Beery on Sun, 29th Jun 2014 6:08 pm
Well, the article is right about one thing – cars are a weapon – they kill over a million people worldwide every year. That’s the equivalent of 9-11 every day of every year, and it’s a greater death toll than any current war.
But cars as weapons is not something anyone should be proud of. The proper reaction is shame and embarrassment.
Makati1 on Sun, 29th Jun 2014 7:37 pm
The current turn over time for the US fleet is about 12 years and growing. Fewer can afford ‘new’ so ‘preowned’ become more expensive. People will now keep their cars until they refuse to run or cannot be fixed for less than the price of another used car. The turnover time is growing and some of you own your last new car. Typical WSJ Capitalist hype article.
toolpush on Mon, 30th Jun 2014 2:42 am
Mak,
I think you are there already, I was looking for a small car for my daughter in the US. I couldn’t bring myself to paying over $7,000 for a car with more than 100,000 miles, so we got a new one, at $13,000 one the road. 5 year full and 10 year drive train warranty, and she is recording a 50 mpg on the hwy. It is a Mitsubishi Mirage. A bit small for most Americans, but much more sensible than buying a car where the loan lasts longer than the car.
Fulton J. Waterloo on Mon, 30th Jun 2014 10:31 am
Toolpush: good move!
Kenz300 on Mon, 30th Jun 2014 11:56 am
Electric, flex-fuel, biofuel, CNG, LNG and hydrogen fueled vehicles are all growing in use diversifying the transportation fuel being used.
Major cities are now seeing the benefits of bicycles and bicycle lanes and paths for commuting short distances.
Cities are changing policies that once only benefited the auto and are trying to make cities more walkable and bike able.
There once was a time when trolleys ran thru the center of most major cities providing low cost and convenient transportation to school, work and shopping. Some cities are now bringing them back.
Makati1 on Mon, 30th Jun 2014 9:12 pm
Kenz:
There was a time, at least in the Eastern US, when trolleys linked almost every small town. Then the automakers and oil companies bought them up and tore up the tracks. I remember seeing tracks embedded in the roads at places in the 40s and asked my mom what they were. They were too much competition and had to go so the oil companies could sell all of that $2 oil and Ford could sell his cars to burn it.
I often wonder what the world would be like if we (the US) had not gone down that road and started the chain reaction that led us to today’s dilemma.