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The Link Between Gasoline Prices and Vehicle Sales

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  • Walter McManus

Abstract

This paper examines the link between fuel prices and sales of cars and trucks. U.S. automakers have long denied that such a link exists. One source of this false belief is an obsession with the crude count of units sold, equating Hummers with Minis. Another source is the conventional “wisdom” that Americans are unwilling to pay for fuel economy. The paper presents theoretical reasons and market evidence that refute Detroit's conventional wisdom. American manufacturers' reaction to rising fuel prices over the last few years revealed the shortcomings of the U.S. automakers' recent product and powertrain strategies. The effect of rising fuel prices has, in effect, been offset by reducing prices of vehicles in inverse proportion to fuel economy. Thus, unit sales of large SUVs could be maintained, but their revenue (and profit) fell because vehicle prices were cut, directly or indirectly. The paper concludes with a few practical guidelines that business economists should use to prevent their companies from experiencing the recent massive losses experienced by the U.S. automobile industry.Business Economics (2007) 42, 53–60; doi:10.2145/20070106

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Business Economics.

Volume (Year): 42 (2007)
Issue (Month): 1 (January)
Pages: 53-60

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Handle: RePEc:pal:buseco:v:42:y:2007:i:1:p:53-60

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Cited by:
  1. Tsvetanov, Tsvetan & Segerson, Kathleen, 2013. "Re-evaluating the role of energy efficiency standards: A behavioral economics approach," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 347-363.
  2. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working Papers, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy 07, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  3. Sa-ngasoongsong, Akkarapol & Bukkapatnam, Satish T.S. & Kim, Jaebeom & Iyer, Parameshwaran S. & Suresh, R.P., 2012. "Multi-step sales forecasting in automotive industry based on structural relationship identification," International Journal of Production Economics, Elsevier, Elsevier, vol. 140(2), pages 875-887.
  4. Frankel, David M., 2014. "Optimal Insurance for Small Stakeholders," Staff General Research Papers, Iowa State University, Department of Economics 37551, Iowa State University, Department of Economics.
  5. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working papers, University of Connecticut, Department of Economics 2011-24, University of Connecticut, Department of Economics.
  6. Kleinbaum, Rob & McManus, Walter, 2009. "Fixing Detroit: how far, how fast, how fuel-efficient," MPRA Paper 19607, University Library of Munich, Germany.
  7. McManus, Walter, 2007. "Economic analysis of feebates to reduce greenhouse gas emissions from light vehicles for California," MPRA Paper 3461, University Library of Munich, Germany.

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