Green Car Sales Soar With the Price of Gas

The price of gas has soared past $3.50 and even $4.00 a gallon, and the end is not yet in sight.  This has spelled big trouble for some automakers that are heavily dependent on sales of big SUVs.  As the price of gas soars, sales of larger SUVs have collapsed, falling 25% according to the NY Times (May 2, 2008), with some models like the Chevy Tahoe falling even more, dropping 35%.  The EPA-rated mileage of the Tahoe is 14 city/19 highway for the 4.8L v8 vehicle. Ford reported that in May 2008 cars outsold trucks for the first time since 1992. 

Even as sales of large cars have fallen, sales of small, fuel-efficient cars have soared.  Sales of the low-priced Toyota Yaris (29 mpg city/35 highway) are up 46%, and the Prius once again has a waiting list.  If the price of gas moderates in the mid-term, as some analysts predict, the trend may slow, but the shift in consumer behavior shows that economics matter and will drive increased efficiency in the auto fleet much faster than some may have thought possible previously with cheaper gas.   The auto makers are realizing this is not just a temporary shift, but a sea change in the market, one that some were better prepared for than others.  Perhaps the CAFE standards implemented in the 2007 Energy Bill, to achieve 35 mpg by 2020, will prove irrelevant far before this date.   Entrepreneurs who can capitalize on this shift toward smaller, greener cars should do well in the long term, one way or another. 

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