Why are Articles Promoting Gas Guzzlers Now?

I have seen a plethora of articles like this one on MSN proclaiming that now is the best time ever to jump into an SUV. The articles invariably point out the low price point and their prediction that gas prices will go down to "normal" levels in the future, which in turn makes SUVs less costly. Of course, these articles completely ignore the why the price of SUVs are so low and how exactly gas prices are going to go back down.

The simple economics explanation for the low SUV prices is that demand has dropped. And an economist would assume that people were acting rationally and decided that the costs of an SUV were not worth the benefits. Of course, markets can be wrong, but a basic presumption of all economics is that markets work efficiently. The price is set by what the collective society values a product as. It is true that emotion (something economics struggle to grasp) can disrupt markets and many of the articles point out negativity towards SUVs now, but there is no evidence that this emotion is what is dragging down prices. In fact, it is pretty clear to me that emotion was artificially boosting SUV in the past; people were feeling patriotic about driving Hummers, and SUVs were the new it product. Regardless there is no credible evidence that SUV prices are going to rebound in the future; the entire argument rests on the assumption that current prices will trend back to past prices over time, but this assumption is fundamentally flawed, just ask anyone still looking for tech stocks to hit 2000 highs.

This flawed reasoning also affects the conclusion that gas prices will drop. The entire argument rests on the memory of $14 per barrel oil of the 90's. But those prices were unnaturally, historically low; OPEC was having trouble controlling supply, industrialized countries were not driving up demand and emerging markets were not humming yet, and there was a period of relative calm in the world. But all of these conditions are gone. OPEC has reigned in its exports, the US has wholly abandoned conservation under Bush, the emerging markets are gobbling up huge quantities of oil, and I see no way that even relative peace will return to the world, especially the oil rich Middle East in the next few decades. My question is where the drop is prices is going to come from. No article has even begun to address this; every single one relies on the false promise that gas was cheap and it will be cheap again.

To me it seems like mere hogwash to be proclaiming now the time to buy a SUV. Certainly some Americans need a SUV for their business related needs or would want one for recreational purposes, such as towing a boat, but if buyers of cars ignore the clear trend of higher gas prices based on a flawed notion that prices must come back down, they are going to stick themselves in gas guzzlers that are going to lock their finances into buying gasoline to run the behemoths.

Comments

Not to Mention environmental costs

I ignored the obvious environment costs of burning gasoline or diesel or even ethanol mainly because the underlying articles do also. But I think that as environmentalism comes back into vogue in our ever warming world, the demand for SUV's will continue to plummet, reducing any future ability to sell the gas guzzler.

Lance, that was funny

I loved when they insisted that you enlarge the pictures....



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Vote Democratic! The ass you save may be your own.

Obviously there are people

who still think it would be cool to own an SUV. I drive a wannabe b/c I need the cargo space. I would never move up to a true SUV and if the Highlander hybrid is ever sold at a reasonable price I will probably buy that (or something similar in size) for my next vehicle. No telling what will be on the market when I'm in the market.

I'm a bit baffled by the articles myself. Dealers are desperate, so prices are down. I wonder whether the demand for SUVs will ever recover. I hope not.



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Vote Democratic! The ass you save may be your own.

To be clear

I am not against people who truly or even half-way truly need SUV's. But I hate when I drive down 40 and pass a Suburban that has never been taken off-road or towed a boat and is being driven by one person. If you have a SUV and use it for purposes that a car is not suited, fine.

I had a pickup truck when I was doing camping and cycling trips every weekend, I understand that type of use. But when I saw a real estate agent riding a Hummer, that killed me; I honked at her as loud as I could, and I think I scared her costumers.

To be clear

I am not against people who truly or even half-way truly need SUV's. But I hate when I drive down 40 and pass a Suburban that has never been taken off-road or towed a boat and is being driven by one person. If you have a SUV and use it for purposes that a car is not suited, fine.

I had a pickup truck when I was doing camping and cycling trips every weekend, I understand that type of use. But when I saw a real estate agent riding a Hummer, that killed me; I honked at her as loud as I could, and I think I scared her costumers.

You can say that again

To be sure, to be sure.

Nit Pick

I agree fully with your point, but on a side note: real estate agents really do need more seats than a sedan has to offer. When your clients are following you from house to house in their own car, you may be losing them, and you're certainly losing the opportunity to hear the things you need to to do a good job.

Of course, a Sienna or Odyssey would do the trick nicely. Maybe the agent in question caters specifically to overcompensating tools?

My agent

My agent had an Acura. And how many seats do you need? I figure three. One for the agent, two for the couple. And the Hummer only has five seats, just like a regular car.

Really? Only Five?

That's insane. I didn't know that.

It's not all that uncommon for parents or kids of the buyers to go house shopping. My brother and I went with my parents when we moved when I was in high school.

Yes, 5 seats

The Hummer has 5 seats in the H2. The H3 is smaller, and I think still has 5 seats.