About a year and a half ago, I saw the writing on the wall. OPEC had been pumping out millions of barrels of oil a day at a significant loss in order to drive supply higher than demand and drive down prices. They did this to drive down profit margins on already low margin U.S. producers, effectively putting them out of business. At the time, I warned readers that low gas prices were a trap and to not take the tantalizing, yet short-sighted bait.
Whether you took the bait or not, Americans as a whole have decisively done so.
It didn’t take long at all for those sinking gas prices to lead to a significant decline in the purchase of electric and other fuel-efficient vehicles and well as many of the smallest and cheapest new vehicles. And it was only a matter of time before massively inefficient large trucks and SUV’s once again dominated the roadways.
That came to fruition. For the first 6 months of the year, a disgusting 58% of all autos sold in the U.S. market were either trucks or SUV’s. =(
Financial, environmental, and health concerns aside, this presents a significant roadblock for the increased U.S. fuel economy standard of 54.5 mpg by 2025. If consumers aren’t buying fuel-efficient vehicles, it limits innovation and investment in new high-efficiency models.
Meanwhile, the average price of gas is now expected to start rising again because oil demand is once again outpacing production, cutting into inventories.
This shouldn’t surprise anyone. The historical average price of gasoline is anything but consistent, and within just the past decade, we’ve seen gas prices almost double and cut in half on 2 separate occasions already.
Of course, with all of these new behemoths on the roads for the next 10+ years and increased demand for vehicles in emerging economies, there will be even more upward pressure on oil prices.
With U.S. competition out of the market (many U.S. providers have now entirely shut down operations), it’s only a matter of time before OPEC and other low-cost oil sands producers decide to cut production and drive prices even higher.
And when that happens – good luck on the resale value as you compete with thousands locally to unload your cash-burning 5,000 pound grocery transporter.
The lesson for all of us to take away from this (and hopefully it’s not too late for you to learn the easy way through the folly of others) is that you should not make massive purchase decisions based off of short-term trends like a temporary decline in gas prices.
The same is true outside of vehicle purchases as well – trendy destination weddings, hot new electronic devices, continuously revamping your wardrobe to keep up with the latest fashion trends, overpriced degrees, jumping in to the low or no money down mortgage trends in an overheated market, etc. The list goes on and on.
Impulsive flavor-of-the-day consumption trends usually leave you burned. Consistent frugal consumption behavior always wins in the prosperity game.