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Customer LoginsFuel prices vs. drive type
The correlations between fuel prices and both the size and body type of new vehicle purchases have been well documented: as fuel prices rise, consumers shift their purchases from larger SUVs and pickups in favor of smaller cars and crossovers. What has not been as well documented is the substantial correlation between fuel prices and drive type; as fuel prices rise, consumers tend to gravitate from all-wheel drive to front-wheel or rear-wheel drive vehicles. This makes sense since all-wheel drive vehicles require fuel to power all four wheels. While this less-talked-about correlation may exist because of the body type patterns previously mentioned, nevertheless the fuel-type-drive type correlation still is a reality.
The correlation between fuel prices and drive type was particularly strong during the period from December 2005 through August 2009 when the correlation coefficient between these two measures was a robust .57. However, from September 2010 through this past November, the correlation coefficient declined to .43. In this later period, and particularly since last summer, the all-wheel drive mix has risen while fuel prices have remained mostly steady. The increasing number of crossovers in both the premium and non-premium sectors has most likely contributed to this rise in the AWD mix.
Although most people believe gas prices will rise due to increased demand from India and China, among other reasons, this is by no means a given. In the past there have been numerous predictions that gas prices would spike dramatically or even double, only to see them rise just slightly or even remain steady. Given that this key factor in the automotive business remains somewhat unknown at this point, it would seem that the most judicious product plan would offer both two-wheel and all-wheel/four wheel drive products to meet consumer demand at a wide range of fuel prices.
Posted by Tom Libby, PolkInsight Advisor, Polk (02.21.2011)