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Trends indicate higher gas prices are here to stay - July 12, 2008
New SUV worth $40,000 in 2006 worth $12,000 today on the open market
Like many Canadians, I expected the rise in gas prices this spring to eventually stabilize or fall back to reasonable levels, as they have done before.
But recent trends have convinced me that high gas prices are probably here to stay.
In other words, the automotive industry and consumers had better get used to it and start adjusting to this new reality.
Customers and colleagues have been asking me where gas prices are going. I tell them straight – I have no idea where prices will be tomorrow, next month or next year. Nobody does.
Already high gas prices are having a dramatic affect on dealers and consumers, as many car buyers are moving away from large SUVs and pickups in favour of smaller, more fuel-efficient vehicles, including hybrids.
I think we're witnessing the tip of the iceberg in terms of a shift in consumer car buying behaviour. Some dealers and manufacturers are obviously in a better position than others to offer customers low-mileage vehicles.
However, all manufacturers are studying the North American market carefully, and I think that manufacturers will accelerate their production of leaner, greener vehicles over the next few years.
I don't mean to sound alarmist, but the aftershocks of high gas prices are already being felt in the marketplace. Two weeks ago, I spoke with a customer who bought a brand-new SUV in 2006 for $40,000.
Today, that same vehicle (with 50,000 km on it) is worth just $12,000 on the open market. That's a 70 per cent drop in value in just two years!
This customer is understandably upset.
A good chunk of the equity in his vehicle has been wiped out because fewer buyers are interested in it.
It's a classic case of supply and demand.
I empathize with all car owners whose vehicles have suddenly plunged in value as a result of high gas prices. As a dealer principal, I don't like it any more than consumers do.
The shift away from SUVs and pickups represents huge potential losses for dealers and manufacturers as well. When customers return vehicles off lease, dealers are left owning inventory that is worth a fraction of its expected residual value.
For car owners who drive larger vehicles that aren't particularly good on gas, or who aren't in a position to sell or trade their vehicles right now, don't despair. There are things you can do to reduce your fuel bill.
By making some simple adjustments to your driving habits, you can avoid paying more than you have to for gas. Here are a few suggestions:
Avoid unnecessary trips. Some insurance companies even offer low mileage programs that allow drivers to save money on their premiums.
Telecommute. Working from home one day per week can yield hundreds of dollars in gas savings over the course of a year.
Maintain your vehicle. A properly tuned engine will increase your gas efficiency by 25 per cent.
Check tire pressure weekly. Avoid driving at excessive speeds.
The final point I'll make is this: High gas prices might tend to evoke knee-jerk reactions from buyers who want to move from one vehicle category to another, based on the price of a litre of gas.
But don't rush your buying decision. Comfort, safety, styling and affordability should still be factored into any decision. For information about fuel efficiency, and to determine how much fuel you're using, visit the Natural Resources website at www.oee.nrcan.gc.ca.
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