Falling gasoline prices are driving demand for bigger, more luxurious — and less fuel-efficient — vehicles.
Canadian and U.S. consumers began trading up to bigger vehicles almost as soon as prices at the pump started to fall, fuel efficiency data shows.
“It’s as if the husband gets home and says, ‘Hey honey, did you see gas prices are down 10 cents today? We can go buy that big gas guzzler we’ve always wanted,’ ” said Dennis Desrosiers, head of market research firm Desrosiers Automotive Consultants.
The price of gas at the pumps in Canada had fallen to 98.1 cents a litre by the end of 2014, down from a peak of $1.41 in mid-June, as its main component, crude oil, plunged on weaker global demand and a glut in supply.
Benchmark West Texas Intermediate for February delivery fell again Tuesday, dropping $2.11 to close at $47.93 (U.S.) a barrel in New York.
Falling fuel prices helped drive auto industry sales in 2014 to record levels in Canada and an eight-year high in the U.S, auto industry figures released Monday show.
Sales of trucks and SUVs dominated December sales on both sides of the border, while sales of electric, hybrid, and plug-in vehicles continued to struggle, analysts said.
While strong dealer incentives played a role, especially in year-end truck sales, lower gas prices were also a factor in consumers’ choice of vehicle, industry analysts said.
The move to bigger, less fuel-efficient vehicles also raises environmental concerns.
Greenpeace Canada watches efficiency data closely for signs consumers are switching to larger vehicles.
And while a closely watched index shows that indeed fuel efficiency ratings are deteriorating, it’s being offset by a reduction in another source of greenhouse gas emissions — the oil sands projects in Alberta.
Many of those projects are no longer economical at these low prices for crude oil. Thus the overall impact of falling oil prices on the environment — at least in Canada — “is a wash,” said Greenpeace activist Keith Stewart.
Still, it’s the perfect time to bring in a carbon tax, he said, noting consumer resistance to a new tax on fuel will be lower now that pump prices have fallen.
“Let’s say it started at 5 cents a litre,” Stewart suggested.
A carbon tax on fossil fuels would help make electric and hybrid vehicles look more attractive while raising funds to build alternative modes of transportation such as public transit, Stewart said.
“We’re lobbying the Ontario government to bring that in,” he said.
In general, fuel efficiency has been improving over the longer term, Stewart noted, largely due to emission standards mandated by the U.S. government and adopted by Canada.
As well, people are driving less, he said, with more baby boomers are retiring and younger people are moving into urban areas, shrinking commute times.
In the U.S., new vehicles purchased in October 2014 were nearly 20 per cent more efficient than those bought in October 2007, according to a closely watched index created by the University of Michigan Transportation Research Institute.
New purchasers drove 2 per cent fewer miles that month compared to the seven year earlier period, the index also showed.
As a result, greenhouse gas emissions fell by an estimated 21 per cent over the same time period, said Michael Sivak, co-developer of the institute’s Eco-Driving Index.
However, the long-term improvement in fuel efficiency ratingsbegan to reverse in August, 2014, Sivak noted, just as gas prices began to fall.
In August, the average new vehicle purchased in the U.S. was getting 25.8 miles per gallon. By December, that had fallen to 25.1 miles per gallon, his index reveals.
The reason? People are switching to bigger vehicles.
The same trend emerged in Canada starting in October, said Desrosiers, who creates a similar index for the Canadian market.
Fuel efficiency ratings in Canada had been on the rise for the previous three years to that date, he said.
Desrosiers said he wasn’t authorized to provide specific fuel efficiency figures for the Canadian market.
However, he noted, average fuel efficiency is better in Canada than in the U.S., as Canadians buy more small, fuel-efficient cars than Americans even when gas prices aren’t a factor.