The recent surge in gasoline prices suggests we might see a reversal in consumers’ years-long shift towards trucks or sports-utility vehicles back to more modest, fuel-efficient vehicles. But don't expect automakers to go along. We’re not likely to have an adequate supply of the basic gasoline-powered family sedan ever again, thanks to the transition to electric vehicles, continuing supply chain problems and an aging fleet. Americans will increasingly have to resort to the used-car market, where they’ll pay dearly for their preference.
We’ve been feeling some of that pain for the past two years as prices soared for used cars. Automakers haven't been able to get the semiconductors they need to produce enough new vehicles to meet demand, which has pushed up prices in the used market.
But as those supply-chain issues slowly get sorted out, automakers have begun focusing on high-priced electric trucks and SUV's, which they consider to be their future. There are already long pre-order waiting lists for pricey models like Ford's F-150 Lightning and Rivian's R1S and R1T. Tesla makes electric sedans, but after a price increase announced this week its cheapest model will be just under $47,000.
To the extent carmakers plan on ramping up production of gasoline-powered vehicles, it's going to be mainly high-priced trucks and SUV's, which are more profitable than sedans, and where there's plenty of demand after two years of subdued production.
Perhaps there's a window where producing modest sedans could generate above-normal profits, but automakers remain supply-constrained and don't think investors will reward them for such a pivot now that the industry is all-in on its electric vision.
That's a problem for consumers wanting to buy these kinds of vehicles given the aging of the fleet. While cars last longer than ever, they do eventually wear out, and automakers aren't coming close to producing enough sedans to replace the ones at their end of life.
Assuming sedans last 15 years on average, a way to evaluate this is comparing the number of sedans produced today with the number produced 15 years ago. In 2007, that annual production number was a little more than 5 million a year, whereas today it's closer to 2 million. In other words, the number of sedans on the road is falling by 3 million a year.
So even if the demand for gasoline-powered sedans falls by, say, two million vehicles a year as buyers move toward SUVs and EVs, there would still be a shortage of one million vehicles given the fleet’s life cycle.
While trucks and SUV's have grown in popularity, they're not for everyone — they're not always practical for urban drivers, not very affordable for the working class, and can be too much vehicle for single or childless people. Workers in the growing gig economy — Uber has around one million drivers on its platform — likely value modestly-priced vehicles with good fuel economy.
When might this be fixed? Don't hold your breath. There's a rough analogy with the housing market here. Used-vehicle prices have shown that there's an imbalance and more sedans are needed, and yet production has been declining for more than a decade. Even if demand for sedans continues to fall, supply could fall faster as 2000's-era sedans wear out and aren't replaced, making the market steadily tighter.
Yet it's unlikely that automakers will respond to the higher prices by building more fuel-efficient sedans — they’re too focused on the transition to electrics and dealing with supply chain challenges for at least the rest of this year. Over time, modestly-priced electric sedans can replace gas-powered ones, but automakers are unlikely to prioritize that segment of the EV market until demand catches up to higher-priced (more profitable) models, meaning it could be years until budget-conscious consumers have reasonable options again.
This is another burden on the working class that isn't likely to get better any time soon. So don't be surprised if you also see your Uber fares or Instacart delivery fees go up as well.
Bloomberg News provided this article. For more articles like this please visit
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