A long-awaited threshold appears to have finally been reached in U.S. gasoline prices -- the point at which Americans say "enough." And it is strikingly similar to the last time they did so. With average gasoline prices at just under $4 a gallon, American car-buyers -- just as they did in 2008 -- have begun to veer away from gas-guzzling SUVs, and sharply toward efficient vehicles, including much-derided electrified cars.
This inflection point diverges from the conventional wisdom, which is that, four years after enduring $4 gasoline for the first time, Americans are inured to this striking point. Which price would turn their heads -- $5 a gallon? $6? -- was anyone's guess.
Instead, there still appears to be something important about the number 4, according to vehicle sales reported this week. What does it mean? To the degree that prices stay there, overall U.S. gasoline demand will continue to drop, and the country's economics improve. Will we see the emergence of heretofore unseen American tastes, such as a sudden embrace of motor scooters -- in England, motor scooter sales are surging with gasoline prices verging on *gasp* $9.50 a gallon (pictured above, city transport in Ho Chi Minh City).
For now, it is simply more fuel-efficient four-wheeled vehicles. Consider: Last month, cars achieving 30 miles or more a gallon comprised about 44 percent of GM's sales of 231,00 vehicles, which was a record number for the company, reports the Wall Street Journal. Sales of Toyota's hybrid Prius leapt by 54 percent compared with March last year, to a record 28,711 vehicles. Sales of the GM Volt, the punching bag of the Republican Party, soared to a record 2,289, about 50 percent higher than December, the previous high-sales month. All in all, electrified vehicles were the leading growth sector of U.S. car sales in the first quarter of the year, according to Bloomberg, jumping by 49 percent to 117,182 vehicles.
As a result, GM -- which had halted production of the Volt for five weeks because of poor sales -- is lifting the stoppage a week early, and will resume making the car April 16.
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Surging oil, but a paradigm shift in the U.S. economy: Against the drumbeat of steadily improving economic numbers, could the U.S. actually be on the cusp of a tumble back into recession and a greater geopolitical comeuppance? If you look at economic history, the answer is yes. Yet history may be changing, according to Citigroup oil analyst Daniel Ahn, with whom I exchanged emails this morning.
In a note to clients yesterday, Ahn (part of Ed Morse's oil team) cites a high correlation between how much the U.S. spends on oil, and the onset of recession. The U.S. is right at that historical spending inflection at the moment -- it spends 6.5 percent of its GDP on oil, smack between the 5-6 percent point at which recessions have resulted. "Historically, all but one U.S. recession since the Second World War was associated with an oil price shock. All but one oil price shock was followed by an economic recession," Ahn writes.
Yet, as we have been writing, many oil scholars believe we are witnessing a topsy-turvy realignment in the hydrocarbon world to which we have become accustomed. According to Ahn, the recessionary impact of oil shocks is changing with it: The U.S. appears to be much more resilient and able to withstand higher proportional oil prices. Only at 7 percent of GDP would oil spending -- around $150-per-barrel oil prices in the U.S. and $175-per-barrel crude in Europe -- trigger recession, Ahn told me. Among the reasons are that the U.S. economy requires less oil to produce the same GDP (a reduction in its so-called energy intensity), that Americans consume less and less gasoline, and that the country is on a ramp-up of domestic oil production. Ahn told me:
It's a tremendous paradigm shift .. and it may be happening faster than originally thought. Nevertheless, it is small consolation to the driver facing $5 gasoline immediately.
Go to the jump for more on oil prices and the rest of the Wrap.
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.