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The Link Between Gasoline Prices and Vehicle Sales


  • Walter McManus


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

Suggested Citation

  • Walter McManus, 2007. "The Link Between Gasoline Prices and Vehicle Sales," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 42(1), pages 53-60, January.
  • Handle: RePEc:pal:buseco:v:42:y:2007:i:1:p:53-60

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    References listed on IDEAS

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    Cited by:

    1. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working papers 2011-24, University of Connecticut, Department of Economics.
    2. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working Papers 07, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    3. 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.
    4. Kleinbaum, Rob & McManus, Walter, 2009. "Fixing Detroit: how far, how fast, how fuel-efficient," MPRA Paper 19607, University Library of Munich, Germany.
    5. Daziano, Ricardo A., 2015. "Inference on mode preferences, vehicle purchases, and the energy paradox using a Bayesian structural choice model," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 1-26.
    6. 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, vol. 140(2), pages 875-887.
    7. repec:eee:trapol:v:59:y:2017:i:c:p:75-81 is not listed on IDEAS
    8. 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.
    9. Frankel, David M., 2014. "Optimal Insurance for Small Stakeholders," Staff General Research Papers Archive 37551, Iowa State University, Department of Economics.
    10. Frankel, David M., 2015. "Insuring Customers of a Unionized Firm Against Loss of Network Benefits," Staff General Research Papers Archive 38580, Iowa State University, Department of Economics.

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