ECONOMIC SCENE
Expensive gas weighs down big cars' appeal
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A fully loaded Ford F-250 pickup truck is a whole lot of vehicle. It can tow a horse trailer with multiple horses. It comes with a DVD-based navigation system for the driver as well as a DVD player for passengers who are sitting in the extended cab.
And how much does an F-250 set you back these days?
Try $100,000.
The F-250 is part of the first generation of mass-market vehicles — along with the Lexus LX 570, Lincoln Navigator and a few others — to approach the six-figure mark. Now, if you walked into a showroom today and asked to see one of these vehicles, the price tag wouldn't be anywhere near $100,000. It would be more like $50,000.
But you don't buy a vehicle to leave it in your garage. You buy it to drive it. So it makes sense to consider the full costs of ownership, which include insurance, interest, repairs, taxes and, of course, gasoline. If gas remains near $4 a gallon, as many analysts expect, a big vehicle like the F-250 will cost $100,000 for an owner who keeps it for a typical amount of time (five years) and drives it a typical amount (15,000 miles a year). The gas alone would cost about $30,000, up from about $10,000 in the 1990s.
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No wonder, then, that Americans are changing their driving habits so quickly. With sales plummeting, General Motors said Tuesday that it would stop making pickup trucks and sport utility vehicles at four of its North American plants.
The company is also considering selling its Hummer brand, an emblem of the megavehicle. Rick Wagoner, GM's chairman, explained the moves by saying that he thought the shift toward more efficient cars was "by and large, permanent."
The unyielding reality is that price matters, enormously. That's all you need to know about the car market these days. And it's almost all you need to know about the debate over energy policy that has consumed the Senate this week.
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Americans fell in love with vehicles like the F-series trucks in the 1990s, back when gas didn't cost much more than $1 a gallon. At the time, the price seemed perfectly normal, because gas had generally cost 90 cents to $1.25 a gallon, going back to the early 1980s.
But the stability of those prices was actually a sign of something deeply unusual. The cost of most everything else was rising, as was the size of people's nominal paychecks. So in practical terms, gas was becoming cheaper. By 1999, it had effectively fallen to its lowest point on record, about 30 percent lower than in the 1950s and '60s.
Cheap gas made a highly desirable luxury item — hulking vehicles, with lots of power, a high view of the road and backseat DVD players — affordable for many families. The recent run-up in gas prices has changed that. On Tuesday, the nationwide average hit another record, $3.98 a gallon.
With help from Jake Fisher, a senior automotive engineer at the Consumer Reports test track in Connecticut, I crunched some numbers this week to see how much more expensive these big vehicles had become. The answer is pretty simple: a lot more expensive. While the F-250 costs $100,000 and a fully loaded F-150 — the better-known, smaller Ford pickup — costs about $70,000, a Ford Focus still costs less than $40,000 over five years. So does a Honda Civic Hybrid. A Toyota Prius costs a little more. A Subaru Outback station wagon costs $50,000 or so.
To put this in perspective, the difference between a Focus and an F-250 over five years is $60,000. The annual pre-tax income of a typical family in this country is now about $60,000. So choosing a F-250 over a Focus is like volunteering for a 20 percent pay cut. The relative resale values might cushion the blow a little, but not much.
That's why more people are deciding that towing capacity and the other benefits of pickup trucks and SUV's are not worth the costs. The F-250 may still make sense for some business owners. But, as Fisher says, on those few occasions when the rest of us need to move some horses, we can rent a truck. "The new economics of car buying is, 'Don't overbuy,' " he told me. "Buy something you're going to need most of the time."
If gasoline were like most other products, the story could end here. There would be little reason for United States senators to worry about the ebbs and flows of people's driving habits. But gasoline — and, more broadly, oil — is different, for two main reasons.
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