Study Finds Both Unemployment Rate and Fuel Price Influence Buyers’ Decisions on Fuel Economy of Vehicles Purchased
From October 2007 to April 2009, the average fuel economy of purchased new light-duty vehicles improved from 20.2 mpg US (11.6 L/100km) in October 2007 to 21.3 mpg (11 L/100km) in April 2009. A new study by a two researchers at the University of Michigan’s Transportation Research Institute (UMTRI) found that during this period both the unemployment rate and the cost of gasoline influenced buyers’ decisions concerning the fuel economy of vehicles purchased.
During the same period, the volume of sales plummeted. Michael Sivak and Brandon Schoettle also found that while there was a significant negative relationship between the unemployment rate and the number of vehicles purchased, the price of gasoline did not have a major impact.
The study examined the relationship between two economic indicators—the unemployment rate and the price of gasoline—and purchase decisions of new vehicle buyers. Sivak and Schoettle performed two regression analyses, one focusing on the number of vehicles purchased and the other one on their rated fuel economy.
Among the conclusions of the study:
The unemployment rate accounted for 89% of the variance in vehicle sales; the price of gasoline was not a significant factor in the model.
Both the unemployment rate and the price of gasoline had significant effects on the average fuel economy of purchased vehicles, and accounted for 53% of the variance in the average fuel economy.
The present analysis suggests that there were two different processes influencing vehicle-purchase decisions with respect to fuel economy. 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. 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.—Sivak and Schoettle
CO2 emissions per driver down. A companion study by Sivak and Schoettle for that period found that as a consequence of the improved fuel economy of purchased new vehicles and the decrease in distance driven, the carbon dioxide emissions per driver from purchased new vehicles were lower in each month when compared to October 2007.
For this analysis, the two assumed that the known overall decrease in vehicle miles travelled were equally applicable to the subset of drivers that purchased new vehicles.
American drivers have recently decreased their amount of driving and purchased vehicles with better fuel economy. By itself, the decrease in the amount of driving for the entire fleet of vehicles has resulted in a 3% reduction in carbon dioxide emissions per driver in April 2009 (the latest month examined) when compared to October 2007. Furthermore, because buyers of new vehicles have tended to purchase more fuel-efficient vehicles, their contribution to the decrease in carbon dioxide emissions was even greater.—Sivak and Schoettle
These studies were supported by the research consortium Strategic Worldwide Transportation 2020. Current members include Bendix, Bosch, Continental Automotive Systems, FIA Foundation for the Automobile and Society, Ford Motor Company, General Motors, Nissan Technical Center North America, and Toyota Motor Engineering and Manufacturing North America.
Michael Sivak and Brandon Schoettle (2009) Economic Indicators as Predictors of the Number and Fuel Economy of Purchased New Vehicles (UMTRI-2009-27)
Michael Sivak and Brandon Schoettle (2009) Recent Reductions in Carbon Dioxide Emissions from New Vehicles