Office of the Vice President for Global Communications

Tuesday, September 8, 2009

Research

Unemployment, gas prices help boost average fuel economy of new cars



Since late 2007, average fuel economy of new vehicles purchased has increased by more than 5 percent, thanks in large part to unemployment and gas prices, a U-M study suggests.

The average fuel economy of purchased new light-duty vehicles (cars, pickup trucks, minivans and SUVs) improved from 20.2 mpg in October 2007 to 21.3 mpg in April 2007. It peaked in May 2008 at 21.7 mpg.

According to a new report by Michael Sivak and Brandon Schoettle of the U-M Transportation Research Institute, the unemployment rate and the price of gasoline together account for 53 percent of the variance in the average fuel economy of new cars purchased.

“In early 2008, when the unemployment rate was relatively low, the increased price of gasoline led to an increase in the purchases of those relatively expensive vehicles that are fuel efficient,” says Sivak, research professor and head of UMTRI’s Human Factors Division. “This ended when gasoline prices declined in late 2008.

“However, as unemployment continued to rise into early 2009, purchases of large and expensive vehicles — which, in general, are relatively fuel inefficient — declined more than purchases of small and inexpensive vehicles, which, in general, are relatively fuel efficient. Thus, with relatively low gasoline prices and high unemployment, the fuel economy of the new-vehicle fleet improved by an increase in the proportion of purchases of inexpensive vehicles.”

Overall, seasonally adjusted sales of new light vehicles fell by about 40 percent from October 2007 to April 2009. Sivak and Schoettle found that the unemployment rate accounted for 89 percent of the variance in monthly vehicle sales, but that the price of gasoline was not a significant factor.

“Our findings suggest that during the period examined both the unemployment rate and the cost of gasoline influenced buyers’ decisions concerning the fuel economy of vehicles purchased,” Sivak says. “On the other hand, the number of vehicles purchased, while strongly influenced by the unemployment rate, did not appear to be affected by the price of gasoline.”