As the price of gasoline quadrupled over the last decade, US drivers seemed to defy the laws of economics by pumping more into their vehicles year after year.
But this is the year Americans appear to be finally succumbing to price shock at the pump, according to a new report by Cambridge Energy Research Associates, a consulting firm affiliated with IHS Inc. It says the slowdown in the economy and soaring gasoline prices have finally persuaded Americans to drive less and in fewer gas-guzzling vehicles.
“US gasoline demand will likely decline in 2008 for the first time in more than 17 years,” says the report released on Thursday. “For the first time since the 1970s and early 1980s the number of miles driven by Americans has clearly begun trending downward.”
The Transportation Department reported on Wednesday that Americans drove 1.8 percent less on public roads in April this year compared with the same month last year, the sixth consecutive month of driving distance declines.
The Cambridge Energy report cites some fundamental shifts in consumer behavior that suggest the beginning of an enduring trend. The report said that in California, where gasoline prices have historically led the rest of the country, gasoline consumption has declined for two consecutive years and hybrid vehicle sales are rising.
Now the rest of the country seems to be following. Sales of pickup trucks, minivans and sport utility vehicles have fallen below 50 percent of new passenger vehicle sales this year for the first time since 2001, the report says, as consumers turned to smaller vehicles in favor of fuel economy.
“It’s kind of stunning,” said Aaron Brady, a co-author of the report. “It was over 50 percent as late as February and by May it fell under 44 percent. It’s like falling off a cliff.”
Drivers, meanwhile, are becoming more prudent in their driving habits, either by using public transportation, carpooling or just cutting down on unnecessary trips, the two authors said in an interview.
“Public transit ridership is surging all over the country,” said Samantha Gross, the other author.
While total vehicle distance Americans drove grew by nearly 3 percent a year from 1984 to 2004, the rate of growth slowed suddenly in 2005 and 2006 and has declined since then.
The last time gasoline consumption declined for a prolonged period was during the oil shocks in the late 1970s and early 1980s, when annual US consumption declined by 12 percent. Fast-rising oil prices, a deep recession and improved fuel efficiency standards drove down demand for gasoline.
The same situation is beginning to emerge today, according to the report, and basic home economics explains the trends. Since the 1980s, demand for gasoline has climbed fairly steadily, except in late 1990 and 1991 because of a sharp price increase related to Iraq’s invasion of Kuwait and a recession. That is because spending on gasoline became a smaller percentage of family income, especially through the 1990s.
Americans spent about 4.5 percent of their after-tax income on transportation fuels in 1981, according to Global Insight, a forecasting firm. As gasoline prices dropped and family incomes rose, that percentage dropped to 1.9 percent in 1998. Today, it is back to 4 percent or more.
The national price for unleaded gasoline would need to average US$1.12 a liter “to create the same economic pain as in 1981,” the Cambridge Energy report said. “Once unthinkable, such a level is now within view.”
On Wednesday, gasoline averaged nearly US$1.08 a liter.
It would take a sizable decline in consumption to get back to the levels of gasoline use only a generation ago.
National gasoline consumption has grown over the last 25 years by 40 percent because of the growing popularity of sport utility vehicles and minivans as well as longer commutes to work from the suburbs. Low gasoline prices made the growth relatively painless, until the last three years or so.
The Cambridge Energy report said gasoline demand growth slowed significantly from 2005 to last year, when it peaked. Demand in the first quarter of this year declined by 1.3 percent from the first quarter last year.
Even if consumers start driving more, the report predicts that the efficiency of the US vehicle fleet will continue to improve.
“New fuel efficiency standards for light vehicles [scheduled to phase in starting in 2011] by themselves have the potential to begin reducing US gasoline demand within the next decade,” the report said.
If gasoline prices remain high, motorists may well “accelerate their preference shift toward more fuel-efficient vehicles,” the report concluded. “If these trends hold, then 2007 could stand as the peak year for US gasoline demand.”
The authors said they thought gasoline consumption would continue to ease even if gasoline prices went down, unlike in the 1980s and 1990s when consumption sprang back up as prices went down.
“With climate change concerns now, it’s very likely that fuel efficiency will be at the forefront for the foreseeable future,” Gross said, “and it’s unlikely we will go back to not caring about fuel efficiency the way we did in the late 1980s.”
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