Cars

Americans Are Back in Love With SUVs and Pickups

When gas is cheap, bigger beats smaller, cheaper and fuel-efficient.

Everyone's headed in the same direction.

Photographer: Tom England/Bloomberg

The car as we have known it appears to be doomed in the U.S.

No, not because we'll all be biking or taking buses or flying with jet packs or riding around in automated vehicles. Sure, a lot of people think that last one is coming soon. Technology analyst Horace Dediu is betting on bikes. And I'm not willing to totally count out the possible triumph of buses or jet packs.

But until that glorious day comes -- whichever kind of day it is -- it appears that Americans will be driving around not in cars but in sport utility vehicles, minivans and pickups.

Cars Resume Their Decline

Car sales as a percentage of total U.S. light-vehicle sales

Source: U.S. Bureau of Economic Analysis

This exercise in chart making was inspired by a new paper from Michael Sivak and Brandon Schoettle of the University of Michigan's Transportation Research Institute. After decades of losing market share to the vehicles classified as "light trucks," cars staged a bit of a comeback starting in 2005. It was yet another of those data points -- along with declines in vehicle miles driven, slowing population growth in the suburbs, and millennials not buying houses or cars -- that seemed to point to a more compact, more urban, more sustainable future for the U.S.

It's increasingly looking, though, as if most of these "trends" were mainly just the temporary result of a weak economy and high gasoline prices. Cars' market-share decline resumed in late 2013. When Sivak and Schoettle tried to match the market-share data from 2007 through 2016 to some explanatory variables, the best-fitting equation they came up with was:

Percent cars = 100.572 - (1.684 * disposable income) + (1.841 * price of gasoline) + (0.435 * unemployment rate)

The logic behind this is that SUVs and their ilk are generally 1) more expensive and 2) less fuel-efficient than cars. To focus on just one of those factors, here's what real gasoline prices have done since 1976:

What Gas Costs

Average U.S. regular gasoline price per gallon, in 2017 dollars

Source: U.S. Energy Information Administration

Eyeballing this chart and the preceding one leads me to an even simpler equation: When gas costs less than $3 a gallon (in today's dollars), cars lose market share to SUVs, pickups and their ilk. When it costs more than $3 a gallon, the decline halts.

My rule can't hold indefinitely, because that implies that cars' share of light-vehicle sales could someday turn negative. But where's it going to stop?

Schoettle and Sivak offered some hints in another paper, published in April, for which they asked car and light-truck owners why they drive what they drive and what might lead them to switch. 1 Light-truck owners mainly listed utility-related reasons ("greater general utility," "need larger vehicle due to family size," "need to move large or heavy items") for their choice, while car owners focused on expense ("better fuel economy," "lower initial purchase price"). Only 8.7 percent said they owned a car because it was "easier to drive or maneuver," 5.9 percent because they "prefer the image more than other vehicles," 5 percent because it was "more environmentally friendly" (they could give multiple reasons). Only 37.2 percent of car owners said they would not consider switching to a different type of vehicle if gasoline prices fell further.

Multiply that times cars' share of light-vehicle sales in May, also 37.2 percent, and you get 13.8 percent, which seems like a reasonable if very rough estimate of how low cars' market share could conceivably go if the economy stayed strong and gas prices low. In other words, it could decline some more.

As already noted, light trucks are less fuel-efficient than cars. Not only that, but they have made slower gains in gas mileage over the years than cars have.

Light Trucks Use More Gas

Average fuel efficiency of new vehicles, by model year

Source: U.S. Environmental Protection Agency

The rise in light trucks' popularity from the early 1980s through the early 2000s thus resulted in declining fuel efficiency for the overall U.S. light vehicle fleet. Cars' modest resurgence after 2005, following by the Barack Obama administration's focus on raising fuel economy standards, brought big fuel-efficiency gains. Now those are at risk.

Why does this matter? First, while it seems a little retro in this era of resurgent U.S. oil production to worry about dependence on imports, the U.S. is actually still quite dependent on oil imports. Net imports accounted for one-quarter of the country's oil consumption in 2016. The trade deficit in petroleum products also amounted to 12 percent of the overall goods trade deficit in the first quarter of this year, which is way down from 50 percent in 2008, but still big. That share will rise again if and when oil prices rise.

Then there's climate change. Transportation is responsible for close to a third of U.S. carbon dioxide emissions, according to the Environmental Protection Agency. Better fuel efficiency combined with a weak economy to drive a 10 percent decline in transportation-sector carbon emissions from 2005 to 2012. Since then, they've been rising again.

Cars, Trucks and the Climate

Carbon dioxide emissions, U.S. transportation sector, in metric tons

Source: U.S. Environmental Protection Agency

The Obama administration cut a deal with automakers in 2011 to bring the average mileage of new cars and light trucks up to 51.4 miles per gallon by 2025. 2  In part because of the rise in light trucks' market share, automakers missed their mileage target in 2016 for the first time in more than a decade. President Donald Trump announced in March that the EPA will reconsider the future targets.

QuickTake Why Trump Would Want to Slow Tough Fuel Standards

Writing in Slate just before Trump made that (widely expected) move, Daniel Gross decried it as not just environmentally suspect but also a "bad long-term strategy" for Detroit, as the U.S. risks becoming a gas-guzzling backwater in a global market dominated by smaller vehicles with higher gas mileage (or electric motors). It's a profitable backwater, because SUVs and pickups have higher margins than cars, but one that doesn't have great growth prospects.

That's a credible argument. But it's hard to swim against the tide of U.S. consumer demand. And what American consumers appear to demand -- unless gas costs more than $3 -- is SUVs, pickups and minivans.

(Corrects net imports' share of oil consumption in 14th paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. Exxon Mobil Corp. sponsored the research.

  2. The fuel economy standards apply to how cars perform in laboratory tests. The gas mileage chart above shows mileage adjusted for real-world conditions, which is lower.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

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