Blog: Dave LeggettOil price

Dave Leggett | 30 August 2005

With the upward spike in the price of oil in international markets provided by the latest hurricane to hit the Gulf of Mexico, the question of the pump price and the point at which consumers actually change their behaviour has me pondering again. It must have economists/market analysts in car companies (or these days, the guys they outsource that sort of analysis to) working overtime. So far, the evidence from the market of a definite and generalised drift towards more fuel-efficient vehicles looks scant. Big SUVs still sell well in the US. And Europe's light vehicle market hasn't been too upset - in segmentation terms - by what has happened so far, as far as I can see. Maybe demand for the fuel to go into our increasingly well-specced vehicles is a lot more price inelastic than many of us had previously thought. And there's always the question of permanency - how far are consumers expecting higher gas prices to be a permanent thing?

Here's another thought. In the US and Western Europe consumers have never been richer. Okay, Germans have been holding off on spending and there are worries about the lacklustre European economy, but people have never been richer (we have not had a major recession since the early 1990s - quite unprecedented; even the dot.com crash of 2000 and the adverse effects of 9/11 were limited by low interest rates). And yes, people are concerned about the global environment and yes, they are worried about their old age, pensions and the cost of healthcare. But perhaps these very worries and general worries over international - and individual - security translate into a 'me-now-want' mentality. Big car = very affordable, touchy-feely consumption that bestows a sense of solidity and safety along with bells and whistles that are immensely fun, right now. There have never been more automotive products to choose from and prices have never been lower in real terms (and the fuel, don't forget, is still a small proportion of overall 'perceived' vehicle cost). 

Excuse me, the consumer may ask, why am I saving for that slightly nightmarish and uncertain future and why should I drive a small car if I can afford a bigger and better one? How far do my actions of self-sacrifice in running a baked bean tin on wheels amount to anything as far as global issues - as muddy as ever - are concerned? And can't I still have a modern and sustainable greenish lifestyle along with, say, my biggish BMW (which is made by a company that is clever with its marketing and not exactly slow in stressing its sustainable and modern approach to the environment and the car is available with a roof rack for my mountain bikes and surf boards, they recycle everything and you could eat your dinner off the factory floor etc...). Yes, these days I think you can. The choices facing consumers and the stereotypes that maybe go with them are perhaps less clear-cut now than they were ten or twenty years ago. And that is something car manufacturers need to be thinking about.


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