Motor Mouth: Why aren’t high gas prices curbing the sales of gas-guzzlers?

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Automotive News reported earlier this week that rising “gas prices are not denting demand for new cars,” leading the industry’s leading tome to wonder why the recent meteoric increase in the cost of gasoline has “not promoted the seismic shift in buying habits seen during previous price increases.” And indeed, for students of automotive history — and, of course, those of us old enough to have been around in those terrible times — the oil crises of 1973 and 1979 were seminal moments in the industry. The gas-guzzlers of the era — and, back then, they weren’t all pickups and SUVs — were suddenly on the outs, and Japanese compact cars, once ridiculed, gained instantaneous credibility. The domestic auto industry — then The Big Three — never really recovered.

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Save for the popularization of compact cars, the parallels between oil crises past and today’s skyrocketing pump prices can be, no matter what Automotive News says, more than a little frightening. For one thing, like today, said price increases caught the industry unaware, both 1973’s rapid spike — and, to a lesser degree, 1979’s – following extended periods of stable and historically low energy costs. And the response from automakers is hauntingly similar, Robert Mallon, then-president of the American National Automobile Dealers Association (NADA), capturing the prevailing industry sentiment at the time — and echoing the current state — in telling Automotive News that automakers were simply “selling what the public wanted.”

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Even more eerie was Mallon’s note that, as the ’79 oil crisis started, “there were 100,000 Datsuns on the docks at Los Angeles. Datsun dealers were coming to us, worried about inventory. Ninety days later, that inventory had evaporated. Overnight, the demand changed to small cars.” Substitute gas-guzzling pickups for the hulking Chrysler New Yorkers of the era; and EVs for compact cars, and Mallon’s words ring as true today as they did 43 years ago.

So, what is different now?

Well, according to AN, the average vehicle is today more fuel efficient than gas-guzzlers of old, a 2022 pickup boasting about twice the fuel economy compared with its 1970s equivalent. And compared with the last (mini) fuel crisis in 2008, the economy “is in a much stronger position.” More importantly, says Michael Martinez, the author of the aforementioned “Gas prices not denting demand for new cars” article, the automotive industry is being buffeted by recent supply-chain shortages that have seen consumer demand far out-strip industry supply.

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And, even if demand were to drop by 3 or 4 per cent — normally more than enough to send the industry into doomsday prophesies — many industry analysts seem to think that waiting lists will remain the norm rather than the exception. Indeed, things are currently so bad that dealers Motor Mouth has contacted complain of having had completely empty showrooms for more than a year now, virtually their entire inventory sold before it even arrives on their lots. In other words, if you do subscribe to this “Don’t worry, be happy” theory of automotive economics, things are going to have to get a whole lot worse than they are now before dealers have to resort to recession-like discounting.

So, does that mean that the automotive industry is going to weather this latest spike in fuel prices untarnished?

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I’m a little less sure than Martinez is. For one thing, David Rosenberg — the most accurate of economists in predicting impending recessions — says that the S&P 500’s 24-per-cent “peak-to-trough” decline over the last five months is pretty much a guarantee that the recession that we’re all trying to pretend won’t happen is, in actual fact, a fait accompli. (He also says, if I am reading his tea leaves right, that it’s time to long on bonds, but I digress).

The other factor, albeit one that has longer-term consequences, is the forgotten curse of the original fuel crises: fuel shortages. Indeed, I had to go all the way back to 2011 to find a study — Oil, Automobiles, and the U.S. Economy: How Much Have Things Really Changed? — that quantified the automotive malaise of the ‘70s. What so many of us forget — even we ancient mariners that actually lived through it — are the lineups that plagued the service stations of the ’70s. Flared tempers and road rage — actually, fuel station rage — were the order of the day.

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Authors Valerie A. Ramey and Daniel J. Vine tried to quantify the amount of the time we wasted in these lineups in terms of lost wages — they were estimated to have added between 8 per cent (in July 1979) and 67 per cent (in March 1974) to the “shadow price” of a gallon of gasoline — but even that fails to capture the psychological impact of the seemingly endless lineups for a place at the pump. In fact, when CNN did a study of oil crises in 2008 — 30 years later! — it found that consumers were much more concerned about ’70s-style “rationing-by-queue” than they were about the high pump prices themselves.

And, having been there and done that, I can assure you that it’s pretty much impossible to have lived through those seemingly endless lineups and not have a vivid memory of OPEC’s first oil embargo or the Iran-Iraq war. Certainly, the auto industry should remember, since they resulted in some truly terrible automobiles: Ford’s Pinto, AMC’s Pacer, and Chevrolet’s Vega, not to mention GM’s awful J-cars — the Chevy Cavalier, Pontiac Sunbird, and, let’s never forget, the brand-killing Cadillac Cimarron — were all the result of the incredible seismic shift in consumer demand that resulted from having to wait two and three hours to fill up.

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So, what does all this mean for the auto industry moving forward? Will history, as some predict, repeat itself, only this time with electric vehicles reprising the role of cheap Japanese imports?

Certainly, EVs offer an antidote to the problem of skyrocketing fuel prices, there being no doubt that, for the time being at least, fueling costs — the cost of a kilowatt-hour of electricity versus a litre of gas — are dramatically lower for an electric vehicle than anything with pistons under its hood. On the other hand, where Nissan 510s and Toyota Corollas were inexpensive alternatives to the gas-guzzlers of the day, EVs still command a premium — a significant one, even — to their ICE-powered equivalents. So, yes, they do reduce day-to-day running costs, but it can take up to five years for those savings to kick in.

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Making matters worse is that lithium batteries appear to be getting pricier. Only recently, a spate of automakers — Tesla, Rivian, and GMC to name but a few — have been forced to increase the MSRP of their battery-powered offerings. Nor do EVs offer respite from the supply-chain woes that continue to plague production, Reuters recently claiming “EV battery output [marks] a bigger challenge than the E.U. combustion engine ban.” VW Chief Financial Officer Arno Antlitz, in fact, says that the “most challenging topic [in response to the recent E.U. decision to completely phase out sales of gasoline-fueled cars by 2035] is not ramping up the car plants. The most challenging topic will be ramping up the battery supply chain.”

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Those supply-chain woes may be even worse for the charging infrastructure. More and more industry experts are pointing to infrastructure as the main road block to future EV proliferation. As Motor Mouth has repeatedly pointed out, there is simply not nearly enough infrastructure to service the number of EVs that may soon be on the road.

When CNN did a study of oil crises in 2008, it found consumers were much more concerned about ’70s-style “rationing-by-queue” than they were about the high pump prices themselves

America, for instance, will need as many as 10 million public charging points if it wants to be able to service a fleet mostly powered by batteries. Here in the Great White Frozen North, that number could be as disproportionately high as 1.5 million (we’ll need more since our cold weather dramatically reduces both the range of the EVs being charged and the speed at which the charging points can replenish frigid lithium ions). In Europe, Eurelectric.org projects that Europe will have to build 500,000 public charging stations per year until 2030, and then an additional one million per year until 2035, if it is to accommodate the rapid transition that the E.U. has just recently written into law.

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So where does this leave the auto industry as it sits on the precipice of a momentous recession?

Well, considering the economic forecasts — again, I place a lot of heed in Rosenberg’s predictions — it’s probably safe to say that Martinez’s contention the auto industry will weather the coming recession unscathed is unrealistic. The job growth that has so far sustained consumer confidence — at least enough to keep buying cars — will almost assuredly tank, the disposable cash the economy is currently awash in will probably dry up, and the incredible demand for new cars that’s sending transaction prices through the roof will almost certainly peter out. For once Elon Musk is right: a recession really is inevitable.

The question then becomes: Will high fuel prices create an increasing demand for electric vehicles? Maybe. If fuel prices really are the impetus for consumers shopping new cars, then their economy of operation is certainly a convincing argument. On the other hand, if current pricing trends hold, the only beneficiaries will be those shopping the luxury segment, because good luck finding a battery-powered car for less than 60 large.

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Just as important as the price of gas, however, will be how quickly we roll out the charging infrastructure. Will there be enough charging points if $2 gasoline really does release a pent-up demand for electric vehicles? Or will we reprise the endless lineups of ’70s gas crunches, only this time with charging point subbing in for fuel pump? It’s impossible to predict the future, but, if there’s a lesson to be learned from crises past, it’s that we may complain about fuel prices, but we alter our purchase decisions over fuel shortages. That will almost assuredly apply for charging stations as much as it did to gas pumps.