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Buying Cheap Gas

What happens if that $2.29 a gallon goes up by a couple of bucks a year from now? How are the pickup, SUV and crossover sales going to be then?
#Volkswagen #GeneralMotors #Ford


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On the day in December I’m writing this there is this in a news release from GasBuddy.com, which tracks fuel prices in the U.S.: “For the tenth straight week, gas prices have been in a state of decline, falling to the lowest level since prior to Hurricane Harvey in 2017 to the mid $2.30s with now 31 states with at least one gas station selling gasoline under $2 per gallon, saving motorists hundreds of millions of dollars versus prices just two months ago," Patrick DeHaan, head of petroleum analysis for GasBuddy. Over the weekend I filled up at $2.19 a gallon in the Detroit area, where, according to GasBuddy gas prices averaged $2.26 per gallon. Guess I scored $0.07 per.

The last time gas prices on December 17 were over $3.00 per gallon in the Detroit metro was in 2013, when it was $3.08 per gallon. In 2105 it was a remarkable $1.82.

On December 7, the OPEC member nations announced that they would reduce daily output of oil by 1.2-million barrels per day during the first six months of 2019. One might have imagined that this would have caused a spike in oil prices, which didn’t happen.

And so I got some comparatively cheap gas at my local BP station.

In the past several months we’ve heard that Ford is going to begin focusing on things that aren’t “cars” per se. The F-150 continues to dominate the light-duty pickup market and it will most certainly come in as the best-selling pickup for the 42nd straight year when the figures for 2018 are tabulated. And the company has a suite of crossovers and SUVs, from the EcoSport on the low end to the Lincoln Navigator on the other end.

General Motors announced that three of its car plants will be “unallocated” in 2019, which seems to simply mean that there won’t be any new vehicles going in to them and given that the demand for the various cars is diminishing, they’ll simply fade away. The Chevrolet Silverado and the GMC Sierra full-size pickups are clearly the tent poles for GM, discussions of electric and autonomous vehicles notwithstanding.

The traditional U.S. parts of FCA—Chrysler and Dodge—have the Chrysler 300 and the Dodge Charger and Challenger in the car category. Its RAM and Jeep operations are operating like mad, with record sales happening on a regular basis for vehicles within those brands. FCA’s big launch this year was for the RAM 1500 pickup.

While there is no question that the pickups, crossovers and SUVs that are on offer from Ford, GM and FCA are much more fuel efficient than they were not so many years ago, cars, by and large, still have better fuel efficiency.

Of course, if you go back to that $2.29 per gallon it might be thought that fuel efficiency isn’t a particularly important metric.

However, a concern that bothers me is that competitive brands—Toyota with a new Corolla coming, Kia with a remarkable compact named the Forte, Honda with a Civic that still racks up sales, Hyundai is rumored to have a new Sonata coming for 2020, Volkswagen is launching a new Passat—are still in the car business, including the compact car business, as has just been indicated.

There are two aspects of these vehicles. One is that they tend to be more affordable than crossover variants. The second is that they’re typically more fuel efficient.

Again: Gas is cheap, right? And everyone is working, right?

But what if something happens to the global oil supply? According to the U.S. Energy Information Administration, “International oil companies (IOCs) companies, which include ExxonMobil, BP, and Royal Dutch Shell, are entirely investor-owned and are primarily interested in increasing their shareholder value. As a result, IOCs tend to make investment decisions based on economic factors. IOCs typically move quickly to develop and produce the oil resources available to them and sell their output in the global market. Although these producers must follow the laws of the countries in which they produce oil, all of their decisions are ultimately made in the interest of the company and its shareholders, not in the interest of a government.”

Which essentially means that if something upsets the production of oil in the Middle East and there is available oil in the U.S., those IOCs are going to sell it wherever they can get the best ROI.

So what happens if that $2.29 a gallon goes up by a couple of bucks a year from now? How are the pickup, SUV and crossover sales going to be then?

Even though I am certainly not complaining about cheap gas, I am also wondering whether the domestics didn’t learn something from what happened in 2008-2009.

Were they to have the sort of manufacturing flexibility that allows the comparatively quick change to different models would be one thing. But it seems as if they don’t.


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