Would $4.50 A Gallon Gas Keep You From Buying A Truck? Probably Not
Jason Lancaster | Feb 11, 2013 | Comments 12
According to AAA’s Daily Fuel Gauge Report website, the average gallon of regular gas costs about $3.59 today. According to a recent study by Experian Automotive, a $1 increase in the cost of a gallon of gas would have minimal impact on consumer buying behavior.
if gas prices increased by $1, in an average month with 1 million unit sales, the Small-Car Economy segment volume would increase by 7,000 units. Conversely, the same price increase would cause the Full-Size Pickup Truck segment to lose [5000 sales]
That’s right – according to Experian, $4.60 per gallon gas would barely effect new truck sales. Does that sound right to you?
Experian’s research shows that even a $1 a gallon increase in gas prices has minimal impact on new vehicle sales. Even new truck buyers – who spend more on gas than anyone else – aren’t going to stop buying new trucks if gas prices go up.
New Truck Buyers Aren’t Worried About Gas Prices
When you buy a new truck – any new truck – you’re making a conscious decision to spend a considerable amount of money. Even if you buy the most miserly fuel-sipping pickup on the road, you’re still going to spend a considerable amount on fuel…some math.
Scenario #1 – We drive 1,000 miles a month and we’re getting 20mpg in our fuel-sipping full-size, so we need 50 gallons of gas. If gas costs $3.50 a gallon, we’re going to spend $175 on gas. Our truck costs $30k brand-new, so our truck payment is about $600 a month, and our total expense is nearly $800 a month.
Scenario #2 – We drive 1,000 miles a month and only get 15mpg in our run-of-the-mill pickup, so we need 67 gallons of gas. At the same $3.50 a gallon, we’ll spend $234 on gas. Our truck cost about $30k brand-new, so our payment is the same $600 a month, and our total expense is essentially the same $800 a month.
Scenario #3 – We drive 1,000 miles a month and get 35mpg in a fuel-sipping economy car, so we need about 29 gallons of gas. That’s just about $100 a month on fuel. Since our economy car cost less than $20k, our payment is $400…and our total monthly expenditure is close to $500.
As you can see, new truck owners spend 50-60% more on their vehicles than new car owners.. If you’re buying a new pickup, you’re committing to a major expense…which means that either:
- You NEED a truck and the expense is just a cost of doing business or
- You’re well-off enough that you don’t have to justify the additional expense of buying a big vehicle
Either way, are you going to care enough about a $50-$75 increase in fuel prices to buy a Corolla instead of a Tundra? No.
As for the new truck buyers who are forking over $40k+ for a new luxury crew cab…forget about it. Those buyers don’t care about $75 a month in additional fuel prices any more than my wife cares about spending an extra $5 on organic produce (no matter how much I complain, I might add…).
The point? Experian’s data showing that new vehicle consumers don’t care about gas prices nearly as much as everyone thinks they do makes a lot of sense. Which is probably why I was able to make this argument years ago without doing any complicated analysis (see Gas Prices and Truck Sales Aren’t As Related As We Think from 2009).
What About Used Truck Buyers?
The math behind buying a used truck is a bit different. First of all, used truck buyers are generally focused on reducing expenses (that’s usually why they’re buying a used vehicle). Second, used truck buyers are less likely to be business owners, as the tax rules generally make new vehicle purchases a better choice.
Still, a $1 increase in fuel prices adds the same $75 a month (or so) in fuel costs, and that’s just not a lot of money for a person who can afford to spend $20k on a used pickup ($400 a month car payment). It’s painful, but not so painful that it changes behavior. After all, if you need a truck, you need a truck…you can’t pull your boat with a Camry, haul your ATV with a minvan, etc.
Basically, when it comes to truck sales, gas prices really don’t matter…which is why Toyota didn’t bother with rolling out advanced fuel-saving features on the 2014 Tundra. These fancy technologies are great when it comes to bragging rights, but they don’t effect consumer choices.
Comments?
Filed Under: Buying a Tundra
While this article means to be hypothetical, it’s already a reality in my neck of the woods. Gas prices in Alaska already average $4 per gallon in the big cities, and much higher in rural areas.
Many, such as myself, who need a truck, own two vehicles. I use the the more fuel efficient one for commuting, and the truck for working. Even with the added insurance costs, I can make it up with gas savings.
I pull this off by owning older (paid off) vehicles. I am in the market for another truck, and the price of gas is a factor. The survey is probably right; gas costs wont stop me.
GoI3ig – I think a lot of truck owners have a commuter car – I hear that a lot. Thanks for commenting.
This may be true for a lot of buyers but not all. For example, I need a truck for light duty towing and caring for my small piece of land [and, for fun, some off-roading ability during hunting season] – I do not need or want a mountain moving behemoth. Driving 17K miles per year with an anticipated fuel expense at $4/gal, it’d cost me $4,250 per year to drive a Tundra averaging 16 MPG. Conversely, my midsize Canyon yields 21.5 MPG and I’ve taken several trips with a Ram 1500 (3.6L) attaining 22 MPG (Avg). So, using the same assumptions as above while replacing the 16 MPG with 22 MPG, the annual expense is $3,091. The 22 MPG vs the 16 MPG produces annual savings to the tune of $1,159- more than a few cents. Over 5 years, you are looking at almost $5,800. Regardless, too many people tie their ego up with their method of transportation. They’ll likely continue to purchase $30K trucks, getting (relatively) poor mileage, with 72 months loans until they simply cannot afford it due to significantly higher gas prices.
Rostaf – I certainly won’t argue that too many people tie their ego into their transportation, but I’m not sure that every full-size truck buyer is thinking that way. If, for example, you can haul more, you won’t need to make that ‘extra’ trip.
Still, if you’ve got a cabin in the woods that’s a long way from home, driving a fuel efficient pickup just might be more efficient. However, are you getting the same 21.5 mpg when the truck is loaded as you are when it’s empty? I’m not trying to argue or anything, just curios.
Jason, my post was, indeed, slightly unstructured. I attempted to make the point that 16 MPG vs 22 MPG matters to me financially (not necessarily anyone else- and I do tend to analyze situations to death!). Then, aside from the calculations, I intended to note that the article seems correct in describing the perspective of most buyers- although I think it is unfortunate that people fail to do the long term math.
Bottom line, everyone requires certain features in a vehicle. Some folks are fortunate enough to find the perfect vehicle with regard to functionality, total cost of ownership, the inclusion of amenities, and aesthetics. I’d certainly appreciate a well designed midsize that meets my needs – but the market simply isn’t providing anything close to the “perfect vehicle.” I’ll settle…in due time.
To respond to your question about mileage when loaded, it does decrease. However, the total amount of time I spend with the truck loaded- to the point that it impacts my mileage- is only a fraction of my total drive time. I considered a commuter vehicle with great MPGs in addition to keeping my truck that’s been paid off since 2007. Financial analysis, considering all costs (including depreciation) over a 5 year time frame, simply does not support a two vehicle situation.
Rostaf,
I with you I want a light simple truck with an 8 foot bed. A small diesel with a manual trans getting 25-26 MPG is what we need. The Ford Ranger and F150 are available this way in Brazil and Europe.
A 7l F250 power stroke is a waste of money and the new Tundras are anything but a truck build to do real work in the mud.
But, it can pull the space shuttle,,,,,, what a load of BS my Subaru can do that.
The article’s rational is also why the compact truck market doesn’t come into play…almost as expensive and only minimal fuel savings. Though, I would be happy with a slightly larger Tacoma with a 4.6 V8 as my daily driver :o)
A V8 Tacoma sounds like a rocket ship. I’m in.
Think the assumptions for the most part are true. But I bet like in 2007/2008 when gas spiked, those people driving trucks/SUV’s and didn’t truly need one would abandon the market for an eco vehicle. While those who truly need one, just like in 2007/2008, will continue to drive and purchase them. I’m in the later, so no matter price, I’d always need me a truck regardless of fuel prices.
Justin – There’s certainly a “panic” factor at work, as big spikes in gas prices often tend to make consumers stop and think about where their money is going.
It’s like the cable bill. I don’t notice the minor increases in costs, but one day I realize it’s $80 bucks (or something like that) and I freak out. I think it’s easy to lose track of expenses that we regard as essential (like gas).
Still, this data shows at least two things:
1. Fiat is screwed until they get something that isn’t a micro-car in the line-up. US consumers aren’t going to start buying Fiat 500’s in droves just because gas goes up 20-25%.
2. Ram and Ford – who are VERY dependent upon truck sales – are going to be just fine for the foreseeable future. Doomsayers arguing that these automakers won’t survive an increase in fuel prices are wrong.
Well I don’t particular care for $4 a gallon, but How do I justify a truck when I have a 18.5 bayliner boat, I go fishing minimum once a month or twice a month? Gas for the boat goes alot faster than the truck. Just last night I filled my truck at wotk andf drove home 22 miles and did 58mph and got 21.5mpg. I haven’t did it in awhile so I just wanted to see using winter blend gas how well I was doing. Yes my truck is almost paid off and at 153k miles wondering if I want/need a new truck. Yes I can use a crossover to pull my boat like a Venza. It being an all wheel drive looks inviting to me. Just got that feeling a truck is what I want. We will just have to deal with the gas prices and that’s just the way life is going. On the forums you constantly get people wanting to know the best mpg’s. You just can’t help wonder why did they get a truck if you wanted mpg’s. I’m simply satisfied in getting 17mpg when I make an 1,600 mile round trip at 80mph through the mountains of VA, WV. I’m tickle pink since I hate to fall into a car and climb out and no room in a Prius. I hate it but I bite the bullet for more room. I guess my wants is more than my needs. Being retired military the pay pays for my house and a few other bills. To me it’s a worthwhile investment. Now I just work to pay for the truck and boat. Wife works also which is a great asset. Once truck is paid off I will have a hard time then whether I want a new one and pay monthly for it or just settle with my current and reap the extra money savings. Did I mention I like the new 2014 CM? Well truck being paid off by that time….Hmmmm. Decisions, decisions. I love my postion……
Mickey,
I think we are all jealous! Let us know what you decide to do.
-Tim