Friday, June 6, 2008

When they say sell, I say buy

The death of the SUV is here so says US News. I disagree.

Gas is $4 a gallon. Ouch indeed. But that is ouch compared to 2006. Compared to 1980 or 1960 or 1940 it's about the same adjusted for inflation. For example in 1980 - the last time oil prices went bonkers - the average price of gas was $1.35. Today gas is 3X higher at $4. But median income in 1980 was $17,700. Today it is $49,000, just under 3X 1980 levels. So as a % of income gas costs the same now as it did 28 years ago. Not that the MSM would ever bother telling you that.

This lemming like rush to small cars by people is somewhat understandable. When every day you are bombarded by "news" reports of how the world will end when gas hits $4, you start thinking hmmm maybe driving a Hyundai isn't such a bad idea after all. Multiply that by millions of people, and there you go. Same thing happened in the 70s when the original oil spike occured after the 1973 Israel Arab war. Lots of people went out and bought Hondas and Toyotas which at the time were dirt cheap and about the only option for small cars. But then eventually oil came down in price. And people demanded bigger cars again. Honda and Toyota started making bigger sedans and SUVs and trucks.

And the same will happen this time around. Oil is in the bubbliest bubble there ever was. It may not ever go back to $10 a bbl. But it will fall back to the infation adjusted price we're used to. And that will mean $2 to $3 gas eventually. Which adjusted for inflation is right around where it's been over the past 50 years. And people who like big cars will go back to driving big cars. People who like trucks will go back to trucks. People who like small cars, were probably already driving small cars to begin with before the spike in oil and will continue to do so.

What I do predict is that there will be a glut of used Civics, Sentras, Versas, etc in about 2 years time from now and a big demand for SUVs that won't exist.

Disclaimer: I own an SUV but not a super gas guzzler, along with 2 other cars that get middle of the road gas mileage.

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