Photo: Andy Manis for The New York TimesThe car companies can barely give away an S.U.V. these days. The latest evidence of this comes in the form of three more closings of factories making S.U.V.’s. According to that New York Times article, S.U.V. sales plunged by more than 40 percent this year, compared to a 16 percent decline for new vehicles overall.
Here is the puzzling thing. The apparent cause of death for S.U.V.’s was high gas prices. Doesn’t that mean that with low gas prices S.U.V. sales should come back to life?
I can think of a few reasons why that might not be the case:
1) Consumers think that the low current gas prices are temporary, and in general gas prices will be high in the future. Thus, they don’t want to get stuck with a vehicle that gets poor gas mileage. The question this raises is why consumers were so sure six months ago that gas prices were going to be high forever (which turned out to be wrong), but don’t believe now that gas prices will stay low.
2) The uncertainty of fluctuating gas prices takes the fun out of owning an S.U.V. Even if gas prices won’t be that high on average, it is so unpleasant to have an S.U.V. when gas prices are high that people don’t want to have them if gas prices are volatile. This explanation seems kind of dumb to me, but maybe it is possible.
3) When gas prices got high, it became uncool to own an S.U.V. Perhaps the process for going from cool to uncool is not easily reversible. Once something is uncool, it remains uncool for a long time, even when the forces that caused it to be uncool recede.
This might explain why the demand for pickup trucks remains strong, even as S.U.V.’s fade. Somehow the spike in gas prices didn’t make pickup trucks uncool in the same way as S.U.V.’s. Similarly, minivans have never been cool (or at least not for a long time); so if this explanation is right, minivan sales should stay strong.
My guess is that the third explanation is the most important of the three.
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I think we can attribute consumer behavior in this case to loss aversion. We would rather avoid paying the price for owning an SUV should gas prices go high, than enjoying the benefits should gas prices stay low.
I would offer reasons 4 a) and b).
4 a) Resale value of SUVs is so low that no one wants to be stuck with one
b) resale value is so low that if you want an SUV, you can probably find a good deal in the used car lots.
I agree with #1. However, I don’t think it’s uncool; I think enough people said it’s uncool, and therefore it’s uncool. I’m keeping my 2002 Ford Expedition until I run it into the ground, but having four kids is reason enough.
I would add people like to go to the basics –particularly within crisis. That is, pick ups are usually functional, they are still used to carry stuff, whereas S.U.V.’s, at least where I live, are usually bought to show and economic status. So unless you have to go cross country you don’t really need an S.U.V.
While I admire economists’ facility with numbers, they are unfortunately hopelessly naive otherwise, practically incapable of analysis: “Perhaps the process for going from cool to uncool is not easily reversible.” Are “cool” and “uncool” really the most precise terms that you could use here?
I liked FREAKONOMICS because at least some of the explanations were ingenious, but this blog is just fairly shallow…
I tend to think it’s all 3 and then some – but #3 is a big part of it.
I’d also add that there’s a shock effect going on here. We knew for years SUVs were stupid and wasteful, but they had their fame as a kind of conspicuous consumption – sort of like eating a fancy steak dinner, etc. However with the recent shocks people are now painfully aware of how many habits are wasteful. It’s not just a social factor – it’s a gut-punch factor. The SUVs were suddenly socially distasteful and financially distasteful – along with many other habits.
I’m expecting a LOT of dropoff in conspicuous consumption due to similar factors.
A large reason gas prices are so much cheaper now is becuase the economy is so bad. Consumers realize that’s not likley to be the case for the life of their new vehicle. Trucks may not have taken the hit that SUV’s have since they are more likely to be working vehicles that don’t have an easy substitute. SUV’s are rarely used where a car couldn’t provide the same function.
It’s S.U.V.s not S.U.V.’s.