Why High Gas Prices Are A Good Thing

I know it sounds counterintuitive to say that high gas prices are a good thing. Why would high prices on anything be good? The reason is simple: Prices help shape consumer behavior in lots of areas, including clothing, food and housing. Is there any doubt that high real estate prices are partially responsible for the tiny house movement?

It’s the same story for automobiles. For decades, expensive gasoline has forced many European and Asian drivers to seek out the most fuel-efficient cars they can find. As a result, small, fun, fuel-sipping cars such as the MINI Cooper have become popular.

But it’s more than just vehicle popularity, because high gas prices seem to have created a certain mindset, too. Outside the U.S., there seems to be a car-buying philosophy of “I want the smallest car that makes sense for me.” In the U.S., the philosophy is more like, “What’s the largest car I can afford?”

Changing Attitudes

That mindset is changing. Although Americans have enjoyed relatively low gas prices for a while now, the big price spikes of the recent past, combined with a lingering fear that prices might eventually rise beyond $5 per gallon, have changed the kind of cars that Americans buy. It’s as if high gas prices forced shoppers to give fuel-sipping cars a second chance, and many people like what they’re seeing.

Automakers are responding to this shift by offering more high-quality small cars. Compact cars and SUVs such as the Buick Encore, Chevrolet Trax, Ford Fiesta, Honda HR-V, Honda Fit, Mazda CX-3 and Land Rover Discovery Sport are redefining just how good a small car can be. For instance, sales of the Buick Encore are up 60 percent compared to this time last year.

Innovative Tech

The fear of high gas prices combined with automakers’ desire to beat the competition when it comes to fuel economy has led to some interesting innovations, as well.

Ford’s EcoBoost engines are a great example. These (relatively) new engines are turbocharged for extra power, but the smaller displacement means some improvement in fuel efficiencyAccording to Ford, nearly half of F-150 owners choose EcoBoost, and one version of the Ford F-150 pickup is estimated to get 19 miles per gallon in the city and 26 mpg on the highway, which were Toyota Camry numbers not so long ago.

Rethinking Small Cars

High gas prices (or the threat of them) also encourage us to reassess more than the technology in new cars; they also cause us to rethink the entire idea of what a car needs to be.

Fifteen years ago, would the pint-sized Honda Fit be a sales success? Not likely. Today, Honda reports high sales of the Fit, with a gain of more than 80 percent compared to January and February of 2014.

On the surface, the Fit is nothing more than a small, inexpensive subcompact that seems to have little appeal other than a low price. But if you look a little closer, you’ll see that the Fit can be had with such big-car features as heated leather seats, a backup camera, satellite radio and lots of cargo space.

Free Market Helps

One problem with the argument that high gas prices are good is that it could be considered an elitist mentality. High gas prices do shape consumer demand and can result in better, more fuel-efficient cars. However, these prices can hurt working-class and low-income families who can’t afford to spend $5 per gallon on gas. Of course, this is true of almost anything that’s environmentally friendly.

There’s no easy answer to this. However, if gas prices were to climb steadily and stay high, more people who can afford a hybrid or electric vehicle, or an EcoBoost Ford or new Honda Fit, might choose to finally make a purchase, leading to the kind of thing that always happens with technology: prices would come down.

I once bought a single-tray, in-home CD player for close to $300. Today, you can get a 5-disc CD changer for $65. It works the same with cars: More demand driven by high gas prices is leading to more innovations and even more fuel-saving cars and features, and that, in turn, should lead to greater affordability. Plus, the high-tech cars of today will soon be replaced by shiny new models. The resulting used cars could make their way into the hands of those who just can’t afford a new car of any kind, even if it’s a $16,000 Honda Fit.

Of course, this only has the potential to work if gas prices rise naturally. Government intervention in the form of taxes or artificial inflation might hurt large groups of people that need cars to earn a living and could eventually rob us of the freedom inherent in a free market. Still, if you see gas prices rising due to increased demand or bad weather, don’t get angry. It may end up being a good thing in the long run.
Source: Huff Post

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