Gasoline Prices Are Up, But the Panic Is Not

We've seen this movie before. Middle East turmoil leads to a spike in oil prices, which drives gasoline prices higher and ends with breathless reporters saying, "Consumers are nervous about how much they'll have to pay to fill up!" We saw this the last time gas prices surged in 2007 and 2008.

Gas Pump
Mark Lennihan
Gas Pump

But this time, there's a twist in the story line.

As gas prices have moved higher we have not yet seen the panic in consumers or the angst from auto executives in Detroit. Why? Because what auto makers are selling and what we're driving is slowly but steadily changing for the better.

And for that, you can thank the last surge in gas and the new fuel efficiency standards. Those two events forced the auto industry to get religion when it came to cranking out cars, SUVs and yes, even trucks that get far better mileage.

First, the price surge in '08 made many auto executives realize they need to build more six and four cylinder models that will give customers more miles per gallon. And because of advancements in engine technology the models may be more fuel efficient, but they are not giving up the horsepower and performance car buyers want. It's been a win/win for auto makers and their customers.

Second, the new fuel economy standards that kick in next year and gradually increase by 2016 are forcing the auto makers to build more efficient models. That means an increase in the number of hybrid models for sale, but also in the number of compact cars and crossover utility vehicles. By 2016, the automakers have to average 39 MPG for cars, 30 MPG to trucks, and combine 35.5 MPG. That will be an increase of roughly 10 MPG compared with 2008.

In short, the cars and trucks Americans are buying go further on a gallon of gas. So the price at the pump can go higher before consumers scream in frustration. It's the reason few are complaining about gas at $3.24 a gallon right now. And why many in the auto industry believe consumer behavior (how much they drive) will not change dramatically until gas goes well over $4 a gallon.

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