Which Costs More, the Car or the Gas?

Floyd Norris points out that in the annual cost of ownership equation, fuel prices are nearing the cost of the vehicles themselves!

Historically, rapidly rising gasoline prices have hurt the auto industry, and that seems to be happening now. The carmakers have no trouble selling fuel-efficient vehicles, particularly hybrids that can run on electricity as well as gasoline. Until recently the demand for those vehicles was limited, though, and it is not easy to increase production quickly. But the gas-guzzling vehicles, particularly sport utility vehicles and pickup trucks, have plunged in demand, leaving the carmakers with large inventories at a time when prices for similar used vehicles have fallen sharply.

Note, however, that as a percentage of discretionary income, energy has not yet climbed to the levels seen in the late 70s and early 80s.


chart courtesy of NYT


Gas Was Once a Bigger Expense 
NYT,: July 5, 2008

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What's been said:

Discussions found on the web:
  1. Jay commented on Jul 7

    Broken dollar. Do we bring back Volker?

  2. cap commented on Jul 7

    Maybe some day soon cars will be like cell phones… the big oil companies will give them away so that you’ll buy their gas.

  3. Jerry Causus commented on Jul 7

    With gas-energy cost share only doubling since 2000, from 2% to 4%, and wages flat to negative real, and GNP flat to negative real, then that proves beyond a shadow of a doubt the ***1440% runup*** in crude oil prices must be due to some gynormous and heretofore unreported demand from Chindia, easily 1,200,000,000 new cars or possibly double that, judging from the GMX stats.

    After all, didn’t everyone from Paulson to Buffett assure US that commodities future speculation has nothing whatsoever to do with the unprecedented food-energy price spikes? It must be that surging Chindian demand far above the still rising and even surplus oil production!!

    Yeah, yeah, that’s the ticket!

  4. Pat G. commented on Jul 7

    Historically, the “old” Big 3 should have gotten the message in the mid-70’s and so should have the government with respect to gas guzzlers and fossil fuels. Toyota and Honda did. “Until recently the demand for those vehicles was limited”. Hey, I can’t even get the local Dodge/Chrysler dealer to get any Avengers or Calibers on his lot but if you want a big diesel engine truck….no problem. In the meantime Toyota and Honda have the best fuel efficient vehicles in the world because they saw the opportunity which presented itself back then. The Big 3 and our government are either to ignorant to figure this out which I highly do not suspect or conspiring against us for their own personal gain. That’s not a conspiracy theory..just fact.

  5. Mr. Bubbles commented on Jul 7

    John Hussman has a good piece this week on oil prices. Worth a read.

  6. Roman commented on Jul 7


    You are right its not supply & demand. But you can’t blame it on speculation. At least, not speculation in the sense that someone out there is engineering this rise in oil prices. How on earth would you even do that? Wealthy and powerful international central banks attempt to prop up currencies and they have only limited success doing that. How on earth would some speculators achieve this?

    I think everyone is slowly coming around to the idea that the weakening dollar and the prospects for it to get weaker still have caused this run up in not only oil, but all commodities. Investors have flocked to hard assets as a hedge against a depreciating currency.

    It is just my theory, but I believe this will all come to an abrupt end pretty soon. I actually believe we will see gas below $3/gal but I don’t know how many people will have the three dollars to buy it.

  7. Nicholas Weaver commented on Jul 7

    This also highlights how flexiblity can be a weapon…

    When the Big 3 have a plant, it basically builds one type of car. Which means they can’t change.

    Toyota actually followed this route somewhat with their texas Tundra plant. It produces Tundra, Tundra, Tundra, and, uhh, nothing as the sales of the Tundra circle round the toilet.

    In contrast, Honda’s Ontario plant which produces the Ridgeline and the MDX can also produce civics. So every ridgeline production slot that can’t be sold is instead a Civic which is selling like hotcakes.

    The ability to change what you build is a huge tool

  8. Pat G. commented on Jul 7

    Point well taken Nicholas..

  9. Michael Donnelly commented on Jul 7

    Grr.. autofill still not working

    Did anyone see the news about GM laying off several thousand workers? The big shocker for me was that 27% of GM and 27% of Ford are white collar salary workers. 76,000 in total at GM, that’s a massive overhead to overcome. (what are they all doing?)

    I’ve got a call into some contacts, but my bet is Toyota and Honda don’t have those kinds of numbers. Wonder what the % is at Boeing or something else similiar.

  10. DL commented on Jul 7

    I’m no financial engineer, but it would seem that one way out for GM would be to break up into two companies: one for North American operations, and one for everything else. (Apparently GM is profitable outside of North America).

    Once formed, the international division (ex-North America) would be immunized from the legacy costs of U.S. workers.

    The chairman of the North American company thus formed could then inform the UAW that it’s “sink or swim”. If the UAW decided to let the company go under, then so be it; the stockholders would still have the foreign operations.

    (Then again, Obama may decide to bail out GM with our tax dollars).

  11. Brendan commented on Jul 7

    The article says, “The carmakers have no trouble selling fuel-efficient vehicles, particularly hybrids that can run on electricity as well as gasoline.” I’m so sick of this misleading statement. Hybrids run on gasoline – period! This is like saying that my car runs on gravity because sometimes I push in the clutch and coast down a hill (after I used extra gasoline to get up it)! For better or worse, my truck runs on some combination of coal, uranium, natural gas and renewable resources because it has batteries which are recharged by plugging it into the grid; your Prius runs on gasoline, that’s it! End rant…

    Who knows how much potential profits Honda has missed out on by not seriously getting into the truck market like Toyota did. To say that Toyota made a mistake by producing a bunch of Tundras is relative to the timescale you’re looking at. To say that Honda somehow made a better decision by choosing only to build smaller uni-body “trucks” and SUVs remains to be seen. How many profits did they leave on the table for the last decade by not getting into the large truck market like Toyota? Unless you work for Toyota, for all we know Toyota could shut down and re-tool their Tundra plant and still have made good profit for the last decade or so. Seems to me that Toyota exposed themselves enough to make a profit without overexposing themselves like the big three. They may well have struck the best balance of any of the car makers. One thing is for sure, the big three have been making poor decision after poor decision for quite some time now, so the current state of them should be no surprise.

    Though, to me there seems to be a big elephant in the room that no one wants to see. Look at cars in the last decade (American) or two (European and Japanese). With pressure from the Japanese manufacturers, the American manufacturers have seriously improved their quality in the last decade (one thing they’ve done right). The big leaps in safety an amenities were made almost a decade ago, and there has only been small improvement since. So we have these significantly more reliable cars selling in record numbers with relatively small increases in the total number of miles being driven. I’ve been saying for years that this can’t go on forever. The increase in quality and safety for the last 10 years has been a lot less than the previous 10 years. Cars went though a big revolution and seem to have plateaued in recent years. Besides higher horsepower numbers, which is the one thing that isn’t selling cars right now, a 2003 car isn’t much different from a 2008. Fueled by home equity loans, I think the new car buying spree went on longer than it naturally should have. Eventually people are going to step back and say, do I really need a new car every 40K miles, when a car today will easily last to 140K? Or do I really want to buy a shiny new car when I can get a better slightly used one for the same money (most people are finding that they have a budget and pick a car, not the other way around, borrowing from the house to make up the difference). Now that people are feeling the pinch, a truly new car is definitely going to be one of the first luxuries to go. There’s a glut of low mileage used cars out there. The press seems to want to make this out to be strictly a fuel cost thing, when it’s really only part of the equation. JMTC.

  12. wunsacon commented on Jul 7

    Didn’t our 2-party duopoly already ensure a bailout of GM pensioneers (a) via creation of the PBGC and (b) simultaneously via toothless business regulation as GM execs paid themselves handsomely while underfunding GM pensions (thru the use of non-conservative equity return assumptions)? At least, that’s my limited understanding of it. I might be skewing things.

    I will not be surprised by huge pension fund bailouts. The mechanisms and momentum seem to be in place.

  13. Lord commented on Jul 7

    This appears to end before the most recent and largest increases. It is probably larger now.

  14. PeterR commented on Jul 7

    Free car? Step right up ladies and gentlemen.

    Sold the 10 mpg van and bought a 45-50 mpg Prius. [Yes, I am averaging that.]

    Monthly cost saving are covering the loan payments.

    Free car — no brainer!

    Amazing also how much the hatchback Prius can haul with the rear seats down. Weekly trip to the dump is no prob.



  15. Susan commented on Jul 7

    “Percentage of discretionary income” and “share of personal consumption expenditures” aren’t *exactly* the same thing, are they? I mean, people have been spending a lot of money lately that isn’t really “income.” Would things really look so much better now if the increase in consumer debt since the 70s were figured in?

  16. AGG commented on Jul 7

    Corporate ossification eventially causes bankruptcy. You can’t give cars away like they do printers and expect to recover costs on gasolene (ink). That business model works when raw materials are cheap and plentiful and product assembly is fully automated.
    Cars are a real headache for advertisers now. Cars are a throwback to the rigid casts and rigid class system. When you can’t shout out your status with a “luxury” car then all you are left with is transportation. People will NOT pay as much for tranportation as they will for a status symbol. And this is the problem. People don’t see cars as a fun status symbol any more; they see them as a poison generating money drain.
    From a pure utility standpoint, the proper thing to do is get the smallest car you can and buy a small utility trailer the size of the back of a pickup truck. You use it when you need it. The rest of the time you don’t have to lug the extra 2000 pounds along.
    But as Vance Packard (The Hidden Persuaders) would probably say: That’s too logical. People buy on emotions, not logic.

  17. TrendWatcher commented on Jul 7

    I found Norris’ headline (Gas Was Once a Bigger Expense) to be true but not very useful in understanding the impact of the recent rise of gas prices on the range of individual consumers — based for example on income quintiles. A better headline might have been – Gas Now Takes a Much Larger Share of Income (than it did in 2001).

    It feels to me like the headline is cheerleading designed to give the data that is shown in the chart the most postive possible spin. In terms of importance to most people, comparisons to 5 or 10 years ago are more meaningful than to a worst case data point from 28 years in the past.

    The New York Times interactive chart that BigPicture highlighted back in June makes a strong case for why using an average value like the one in the Norris chart does not give you the full big picture.



  18. pamstaiger commented on Jul 7

    This now makes the old joke true:

    Q: “How do you double the value of a Yugo?”

    A: “Fill the gas tank.”

  19. patrick neid commented on Jul 7

    On the flip side of this, it is a great time for people who actually need to have trucks for work etc.

    The discounts more than pay for the gas for several years. If I needed a truck, my 98 Toyota 4×4 still runs perfect, I’d be down at a dealership grinding them down trying to get a repo right now.

  20. Sarah in OH commented on Jul 7

    To answer above about the white collar overhead. While I am sure there are other reasons why the white collar percents are so high, the two main ones are these:

    1) US automakers essentially became financial institutions with a side business of cars.

    2) US automakers don’t actually make cars anymore. They design and assemble them. All of the parts that they used to make are now made by other companies down the food chain. It takes a lot less blue collar workers to unload parts from trucks and shipping containers and have robots assemble.

  21. omodes commented on Jul 7

    That chart is in direct conflict with everyday experience. Also the average car back then got ten miles per gallon. Today it’s 20 to 30. What exactly is discretionary income? IS that income after paying tax, your 401K, insurance, mortgage, food, communications, gas and electric?

  22. Todd commented on Jul 7

    I wonder how that share-of-personal-consumption-expenditures would look if you factor in the cost of heating oil or natural gas to heat people’s homes in the winter, for those living in the northern part of the US?

    Many people only use 500 gallons of gasoline per year but may require 1200-1500 gallons of heating oil to live in a warm house or suffer through winter as an alternative. When you consider heating oil at $4.75/gallon, you’re talking about a heating bill perhaps as high as the monthly mortgage bill.

    Talking about the cost of gas is perhaps not even half the story. And what about small businesses that have to deal with the high cost of heat? Those small restaurants with dwindling clientele can’t let it get too cold otherwise no one will go there. How much discretionary income (profit) will those small businesses have left?

  23. Todd commented on Jul 7

    “Floyd Norris points out that in the annual cost of ownership equation, fuel prices are nearing the cost of the vehicles themselves!”

    I just realized the parallel that based upon what I wrote about heating oil prices, the monthly cost of the home is going to equate to the heating bill for some folks, too. For 5 months of the year, anyway.

  24. VJ commented on Jul 8


    When the Big 3 have a plant, it basically builds one type of car. Which means they can’t change.

    * GM has one plant in Ohio that builds the Chevy Cobalt, the Pontiac G5, and will be adding the high-mileage Cruze next year. It adds a third shift in August.

    * GM will be shutting down another plant in Ohio that currently builds the GMC Envoy, Chevrolet Trailblazer, Saab 9-7X and Isuzu Ascender.

  25. VJ commented on Jul 8


    I’m no financial engineer, but it would seem that one way out for GM would be to break up into two companies: one for North American operations, and one for everything else. (Apparently GM is profitable outside of North America).

    Not gonna happen.

    That would disenable them to continue to shift profits from their “North American operations” offshore.

    The chairman of the North American company thus formed could then inform the UAW that it’s ‘sink or swim’.

    That has been the entire point of shifting profits offshore.

    It’s not working.

  26. VJ commented on Jul 8


    the average car back then got ten miles per gallon. Today it’s 20 to 30.

    In 1908, the Model Ts that were rolling off the Ford assembly line got 25MPG. One hundred years later, the average car on the road today gets 21MPG.

    Ah, innovation.

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