I’ve written before about demand destruction, but with gasoline prices at historic lows right now we are seeing the opposite: demand rebound. Gasoline sales in the United States are approaching all-time highs last seen right before the “great recession.” People are taking advantage of “cheap” gasoline and driving more. As we slowly recover from the recession (economists tell us the recession ended 5 years ago, but it seems like many areas still are recovering) more people are working and commuting more miles.
Car sales are reaching record highs. Americans seem to have completely forgotten $5 gasoline are are buying more gas guzzlers than ever before. Below I charted out the sales of 21 models of muscle cars, full-sized pickup trucks and large SUVs with an average fuel economy amongst them of just 17 MPG. Since 2010, sales of these 21 models have put nearly 18 million new fuel-hungry vehicles on America’s roads. With an average fleet turnover time of 23 years (from a 4% scrappage rate), these cars will be on the road for many years to come.
Part of the reason for this increase in fuel-hungry vehicle sales is sub-prime lending, which John Oliver does a great job of explaining:
With global oil investment budgets being slashed by over $1 trillion dollars, it seems likely that the market will re-balance itself of the next few years and millions of Americans will be stuck with fuel-hungry vehicles as gasoline prices rise again.