Market Snapshot

Fuel Prices on the Rise Again—Where are the Compact Cars?

60-Month Average Retail Price Chart-Gas
Cyclical fuel price increases are looming. Will they continue to rise?
Compact Car Registrations
Used compact cars may become a higher prized commodity if fuel prices increase.

The summer of 2008 may be remembered for its painful and record-breaking spike in fuel prices. Just like many things that work in cyclical fashions, the seasonal increases may not be deterred by economic conditions.

Summer months are traditionally marred by higher fuel prices. Similarly, vehicle-miles-traveled has held a mirroring effect. In other words, people drive more in the summer than in other times of the year as families increase their travel plans, teenagers earn their summer vacations and people in general are more mobile.

With higher demand, however, comes a noticeable difference in price at the pump and traditionally the supply and demand of fuel price and fuel consumption equalize.

The summer of 2008 was not the first time in history when seasonal market forces caused headaches, but it was arguably one of the most severe examples of the market not normalizing.

The price continued to rise above predicted forecasts and consumers ultimately began changing their behavioral and financial habits. Large vehicle sales and miles-driven both plummeted.

The eventual fall-out was felt for months, even when crude oil prices fell to their lowest levels in five years and far beyond a seasonal adjustment.

Cyclical fuel price increases are looming. Will they continue to rise?

In the midst of OEM bankruptcies, a flurry of automotive announcements and other dramatic economic news stories the price of fuel has crept up without much commotion. According to the Guardian, last month the price of crude oil jumped the highest amount for a single month since 1999. Despite OPEC representatives and fuel market analysts believing the rally to be far from over and agree that fuel prices will climb further, they acknowledge the damage done by last summer’s free-for-all which eroded demand.

Still, even if the U.S. economy begins a much more pronounced recovery, drivers should predictably face higher fuel costs in the coming months. If consumers behave in the same fashion as they have in practically every fuel price hike, the demand for compact cars should rise accordingly. Experian Automotive has supplied SEMA with registration data for compact and subcompact cars. Both classifications have been combined into the table to illustrate where these cars are currently registered. — SEMA Research & Information Center