Falling fuel prices boost further global auto buying trend
SINCE the second half of 2014, gasoline and diesel prices have decreased anywhere from P18 to P19 per liter.
This year, gasoline prices have decreased four times totaling P3.60 per liter while diesel has been rolled back five times amounting to a total rollback of over P4 per liter.
For those who are still wondering why this is happening, let us go back to 2011 when oil prices continued to be consistently high.
As oil prices surged, many energy companies suddenly found it profitable to start extracting oil from difficult-to-drill places.
In the United States, companies began using techniques like “fracking” and horizontal drilling to extract oil from shale formations in North Dakota and Texas.
At the same time, Libya’s oil industry started pumping out oil again after a civil war that had halted oil production for months eased a bit. Also, Iraq’s biggest oil fields in the southern part were no longer being threatened by the Islamic State in Iraq and Syria.
Slowdowns
In the meantime, economic slowdowns in both Germany and China—that peaked in 2014—had reduced consumption for oil. Added to this, the Organization of the Petroleum Exporting Countries was still determined not to cut production as a way of propping up prices.
The result: the cost of oil using Brent crude as a benchmark went down by nearly 40 percent last year.
Moreover, because of rising fuel prices and tightening environmental regulations, the industry was forced to improve its existing gas-powered engines, and to develop new vehicles that consumed less fuel (by improving the engine or reducing the total weight of the vehicle) or ones that relied less on hydrocarbon for power, or not all (hybrid or pure electric cars).
Despite the increase in fuel prices this month (to date, the price of diesel ranges from P23.70 to P28.70 per liter, while gasoline prices range from P33.40 to P40.60 per liter), there are growing signs that low fuel prices are here to stay.
Rising popularity
Since the financial crisis, smaller and greener cars had been rising in popularity in the United States and in other parts of the world.
In recent months, though, industry statistics showed that the sales of larger pickup trucks and sport-utility vehicles have been starting to rise again.
This trend is also being observed in China.
A number of analysts credit the plunging fuel prices for this consumer behavior, observing that American car buyers--as most other consumers in other parts of the world--have “short memories,” and base purchases on today’s fuel prices rather than future trends.
On the other hand, some analysts believe that falling fuel prices will not be enough to convince buyers to make extreme moves, like trading in a subcompact for a large SUV.
In fact, falling fuel prices have given first-time buyers more comfort and confidence to buy a new car: sales of Toyota Wigo, Mitsubishi Mirage, and Hyundai Eon were at their all time high last year in the Philippines.
Other buyers are more emboldened to even dream of something a little larger, like a big sedan or even a mid-sized SUV. After all, these models have lighter platforms and have vastly improved fuel efficiency compared with their forebears that provide savings in the long term.
As for the auto manufacturers, they have learned their lessons and now think long-term. Aside from pushing for fuel efficiency in all their models, they are also widening their lineup and are coming out with more flexible manufacturing processes.