The next time you get into a debate involving gasoline vs. electric cars, remember what happened after the General Motors and Chrysler bankruptcies: The Obama Administration imposed a 54.5-mpg Corporate Average Fuel Economy standard by 2025, but also signed a stimulus bill to jumpstart the economy with a program that helped re-fire construction and public works programs. Pickup truck sales recovered, regaining the segment’s 14-percent share of the U.S. market from a low of about 11 percent during The Great Recession—and with their high profitability, those trucks helped refill the coffers of the Detroit Three.
Oil prices hit an all-time high of more than $160 per barrel by Summer 2008, a number OPEC and other overseas oil-exporting nations wouldn’t see again, as U.S. exploration soon made us the world’s largest exporter and flooded the global market with relatively cheap fuel. Indeed, gasoline vs. electric cars might become a lopsided fight, at least in the near term.
Americans also started to trade-in their midsize sedans for SUVs in the early 2010s, though the growth largely was with compact, car-based models that got relatively decent fuel mileage compared with the truck-based midsize models popular in the 2000s.
This year in early March, as the federal government began to react to the coronavirus pandemic, Saudi Arabia and Russia fought over Saudi plans to cut oil production in order to boost prices. Russia didn’t want to cut its own production, and so OPEC chose to instead lower the price. Last month, oil prices hit a low of $20.48 per barrel, cheapest since the late 1940s. With negotiations underway between Saudi Arabia and Russia, the price lately is back up in the low $30s.
Meanwhile, the Trump administration last week announced it is cutting the Obama-administration standard of an average 5-percent annual CAFE increase by 2025 to a 1.5-percent annual increase by 2026. The new standard amounts to an average of roughly 40 mpg in six years, though engineers among you know these averages are derived from an arcane calculation of vehicle “footprint” and a bell curve for vehicle size that actually gives automakers incentive to add bigger trucks and SUVs with bigger footprints to their portfolios.
Depressed prices have more recently prompted President Trump to threaten tariffs on imported oil in an effort to prop up prices for locally produced crude, and avoid widespread layoffs of U.S. rig workers.
Gas stations will undoubtedly see a jump in their business as their gas lands blows in the latest round of gasoline vs. electric cars. It’ll happen even if business is not up to pre-pandemic levels because millions of people have lost their jobs. The most optimistic hopes for a return to “normal” after the pandemic subsides is that we’ll rush to our favorite local restaurants the way our great-grandparents rushed to taverns after the 21st Amendment repealed Prohibition in 1933.
On the other hand, the pessimistic post-pandemic prediction says we’re headed for something like the rest of 1933. The question of how quickly the U.S. auto industry comes back depends on who can afford to buy new cars when businesses open up again. But we can expect that demand for gasoline will rise quickly, even as millions of newly unemployed still have no job requiring a daily commute.
Until then, the one beneficiary of the pandemic and its economic effects appears to be the environment. As The New York Times reported in late February, China cut back severely on driving, flying, and coal consumption during its attempt to curtail the virus, to the point it reduced carbon-dioxide emissions by the equivalent of a year’s worth of emissions in New York State.
Now, the CO2 clouds are returning over Wuhan Province and the rest of China, even as they clear up over places like Detroit, New York, Chicago, and Los Angeles. They’ll return when we’re ready to rush to our local gas station for some very cheap unleaded regular, no matter what. But it seems to me we face a choice: Do we take advantage of gasoline that has dipped to less than $1 per gallon in some parts of the country (and which I’ve seen as low as $1.53 in Metro Detroit), or do we try something different?
This is not an isolated, car enthusiast question. No one is exactly sure what our businesses will be like—whether shopping malls, already in decline in our Amazon culture, will die completely. Will we gather in restaurants and bars in the same way? Go out to big screen movies, or wait for them to stream on television? Replace Supply-Side Economics with Demand-Side Economics? Redesign cities with fewer costly parking spaces and safer street space for pedestrians and cyclists? Will mass transit take a hit?
Probably. The one industry that’s counting on life returning to normal is the oil industry, and if prices remain low once we get out on the streets again, the consuming public will be drawn to planning summer vacations (for 2021) and maybe trading in their old SUVs for bigger ones.
Automakers like GM and Volkswagen Group could be at a disadvantage in that both have been planning a wide portfolio of electric cars slated to come during the next few years. Some, if not all of those EV models, probably will be delayed as a result of this pandemic. Ford and Honda (which plans a battery-electric vehicle using GM’s Ultium batteries) are getting into the market one model at a time, which might get them more attention from the Tesla crowd but doesn’t portend a wholesale shift away from oil.
Well-heeled buyers who might be choosing between, say, a BMW X3, Audi Q,5 and Tesla Model Y might more often than not go for the Tesla—but will middle-class consumers be willing to trade their Toyota RAV4s and Chevy Equinoxes in for an electric that’s likely to cost substantially more, or even for a RAV4 PHEV?
When this is all over with, and assuming the economy gets back to normal, more or less, what will you choose in the gasoline vs. electric cars battle? Let me know on twitter at @AM_Lassa.