USA Today article about falling gas prices/Prius sales

I don't think gas prices causes a sick economy in the 1970s or 1980. I don't think gas prices help the economy grow in the 1990s - nor do I think the gas prices in the 1990 was all that cheap. cheap depends on your point of view - especially if you are unemployed and short on cash - everything looks expensive. Gas prices reflect political and economic realities but I don't think they were the cause of it.


During the OPEC oil embargo, gasoline was very expensive on the eastern seaboard because the east coast of the USA gets most of its oil from OPEC because that's how the oil distribution system works (it's all about shipping cost). During the OPEC oil embargo, gasoline was still very cheap in Oklahoma, Texas, and
Louisana because they don't normally use oil imports from oPEC because that's how the oil distribution system works. In the 1970, Opec tried to use oil prices as a weapon of retribution for our support of Isreal - but
that's all over with.

The cost of gas depend mainly on oil prices (70%) whose cost goes up and down based on oil futures contract speculators (e.g. Bank of America, Bank of England, Soro, Berkshire Hathaway, Bank of Saudia Arabia, General Electric, Pension fund managers, and soforth). However, Chinese oil companies are busy directly acquiring oil reserves/drilling contracts - bypassing Wall Street Oil Futures Contract open market system - as the *closed/private* Chinese oil reserve network gets really big they will be buying less and less oil via
Wall Streets oil future contract open market.

China-India demand for motor vehicle is projected to overtake the USA in the next 25 or so years and with that global automotive design will shift from the US market to the China-India market.

When the OP story remarkes that the projected Prius sales target isn't all that ambitious - the reporter cast doubts on Lentz's projection that he won't be able to make the official Toyota Sales projections for the Prii family
and that somehow his excuse was sort of lame or a red herring of sorts... so why did Lentz say that?

A few weeks ago there was talk of weakening the Yen, tohelp make Japanese exports more competitive which got Wall Street types crying out foul for advocating currency manipulation. Compared to other parts of the world, the Prius is not that expensive in the USA - If anyone has a right to complain about the Prius's price point its our friends down under in Australia. Not something I would brag about but I'd give the Prius owners of Australia the red badge of consumer debt....

 

The Corolla-Matrix is using an Otto Cycle Engine and the Prius is using Atkinson Cycle engine so there no competition which ICE uses fuel more sparingly. However, without HSD electri motor assistance the Atkinson cycle motor's low end acceleration would be unacceptable for most consumers.

 

Yep. The Corolla and the Matrix (based on the Corolla) would be the closest that we have...

 

Here is the graph. Tell me what you think about unemployment lagging gas prices after looking at it?


It wasn't only the gas prices, it was stagflation - inflationary government policy that also helped get to the really high unemployment and gas prices in the 70s/early 80s.

 

^^^2006 was a really good time to buy a Prius!

 

Let suggest an approach:

1. Identify cars with similar passenger and luggage capacity to the Prius.
2. Check the EPA "roll-down" data and find a car with similar to the Prius coefficients.
3. Now compare the MSRP.

I found the "Prius hatchback" and "Mazda 3 DI" match that profile . . . certainly better than the "Impreza" and" Jetta wagon." Yet the Prius hatchback still has lower drag numbers.

Bob Wilson

 

You forgot the totally random people that just buy the Prius out of the blue I went in to buy a Scion FRS and came home with a Prius Out of all my thoughtless decisions, this is one of the best.

Most of the 40mpg club cars I checked out is either the same price or more expensive than the 2013 Prius two at under 22K.
Mazda 3 Skyactiv, Fushion, Cruze eco, all came with better mpg as an option? Then I found 0 on fuelly that came close. Wonder why there were so many class action cases open.

 

Gasoline prices and US unemployment rate (people collecting unemployment insurance for the first 6-9 months after losing their jobs... BTW this indicator doesn't account for all the people who are unemployed ) are trailing US economic indicators - not the cause but results of other economic forces (which is why they are called trailing economic indicators). Unlike buying which is almost instantaneous measurement, hiring and firing employees that creates the unemployment rate is a slower process. It is more likely that the statistical trend/correlation is due to the fact that gasoline prices AND unemployment rate changes are both being affected by the same and or related economic forces. It's like a stick that stirs up the air before it hits the water. Both the air and the water are stirred but the air gets stirred up before the water.

In the 1970s, our government deficit was mainly caused by military spending and +10 year of fighting the Vietnam War and the beginning of economic globalization where we started to import/outsource more than we exported. The effects of economic globalization would not be so acute for the US economy except for that in the decade of the 1970s we in the USA had depleted our source of cheap sweet oil (some call this USA's oil reserve peak oil event) and so we had imported oil from other countries became it became cheaper to do so than drilling deeper in the USA (off shore) or converting USA shale oil into gasoline grade oil. Combine this with a trend of competitive imports from Europe and Japan and cheaper products from emerging developing countries Asia and south American - USA deficits due to imports kept climbing. About the 1970s, the manufacturing sector started to hollow out causing regional unemployment as it became less competitive with global competitors. Global competitors were using more modern and efficient tooling, had lower Administration-Management cost , better supplier relationships, working on lower profit margins, and had lower labor cost (albeit the press only focused on lower labor cost it wasn't the sole reason - there was a long list of reasons - a business does not normally get Knocked out by one punch but a series of punches or mistakes). Nixon Administration tried to control the price of gas with price freezes but it didn't work. Ford-Carter Administration had a Stagflation. Reagan Administration ran an inflationary policy by cutting taxes mainly for the super wealthy (trickle down Stockman theory) and huge increases in military spending to fight the cold war(SDI aka Star Wars budget ) increasing budget. The Federal Reserve Banks responded by tighten credit to avoid having to pay high interest rates and this caused massive unemployment when businesses could not get loans to expand. During the Reagan era big money got bigger - which lead to corporate consolidations (aka corporate raiding) - and we start to see the rise of the Mega Corporations. This is an important factor in speculative markets since large mega corporation can now act like unregulated mini banks because of their ability to leverage their assets into money( future contracts/short-long puts on stocks). The Federal Reserve Banks didn't until loosen credit (and the US Recession didn't end either) until the end of the Bush Administration when Federal deficit was addressed by federal taxes were increased ( this cost Bush his re-election when his campaign slogan "Read my Lips, no new taxes" came back to haunt him) . In the 1990s, the Clinton Administration benefited from the tax revenues brought in by the Bush Administration and had a balanced budget for all eight years. However, during the Clinton and Bush-Cheney Administration - the Finance/Banking industry was deregulated because the banks wanted to be competitive with the larger mega corporations (remember?) - this increased the risk of market speculation and economic bubbles grew for the USA economy (and because of economic globalization the world). This scenario reminds me of a situation in the card game of Poker where the ante is increased and the pot gets bigger and bigger.... Well - do you feel lucky today? When the housing bubble burst and the global economy crashed in 2007-2009 - the banks and many other started speculating on oil to make cash which is why oil prices spiked in 2008-2010. The weak USA economy has damped the domestic gas demand/ price spikes in 2011 and 2012 but the risk of high gas/diesel fuel cost remains with us today.... Note though that the US economy does not have to recovery for oil - gas prices to go up.

The 2007-2012 gas price spikes represent oil futures contract market bubbles rising and then bursting in rapid succession. Bubble markets - Tiny bubbles in the economy seem to make speculators and financial wonk heads happy ....

In theory of economic globalization ... unemployment in hi labor regions and full employment in lo labor regions is a temporary situation until the world hits a steady state where labor cost are about the same when normalized for regional economic differences. In theory eventually both the overpriced CEO and the overpriced janitor will be out of a job.

This reminds me of that definition of insanity... doing the same thing and expecting the results to be different....

such a serious topic but it has this craziness about it...

All of this makes me think of that Don Ho song Tiny Bubbles....

Tiny bubbles (tiny bubbles)
In the economy (in the economy)
Make me happy (make me happy)
Make me feel Lazy (make me lazy)


Tiny bubbles (tiny bubbles)
Keeps up my portfolio
With a feeling that I'm gonna
Be rich when I'm old

So here's to the gold standard
And here's to the silver standard
And mostly here's no standards
And cheap credit

So here's to a sunny day
I give to you today
And here's a debt
That will not fade away

LOL

 

wow, can I copy and paste for my essay due this week?

 

The graph shifted gas prices 2 years to account for time lag - gas prices up -> less money to spend on other stuff than gas -> reduced consumer spending -> unemployment.

Yes we spend less of a percent of gdp on oil today, so effects are less than in the Carter/Reagan recession. Bad policies likely increased the damage, as Milton Freedman said in his analysis. Oil price controls on domestic oil at the beginning, led to under investment in domestic oil and over consumption. Inflationary monetary policy, created a vicious circle adding to the rise of oil prices. Correction to lower inflation accelerated short term unemployment. I only studied it, it sounds like you lived through it.

 

This is inaccurate:

Source: Omnibus Budget Reconciliation Act of 1993 - Wikipedia, the free encyclopedia

I have a vivid memory because:

• My take home pay went down by $20 per pay check
• Interest rates fell
  • Under Bush I, 30 year, VA Home Loan was 10.5% in 1991
  • Under Bill Clinton, refinanced 15 year home loan at 7.5% in 1993, increase mortgage ~$30/mo.

I don't mind about the other inaccuracies but I have a distinct memory of what happened to my take-home pay and the mortgage payment. Especially because six years after we paid off the house I'm still getting 'cold calls' asking "Do you know how much your VA mortgage interest rate is?"

Bob Wilson

 

Wife has a 2012 Corolla, MPG average is 37. I think (though honestly I haven't researched) that the Prius ICE alone has a lot less giddy-up than the Corolla ICE, therefore would likely burn as much or MORE trying to get down the road and God help...up a hill.

 

I'm thinking you are right bob, and it has some high tech in the engine and transmission too I'd say $4000 hybrid premium for the prius, which is more than for the camry because it adds aluminum and is made in japan. Decide how it should really be outfitted, to figure the premium.

What would you think mpg would be if mazda made it prius shapped and slapped on prius wheels and tires (lower rolling resistance). I don't think that would cost any more to make. My guess would be 33 city/ 46 hwy/ 38 combined. If you were hypermiling and not stopping much, it would get very similar fuel economy to a prius. Lots for stop and go and it would do much worse. Lets say you save 1200 gallons of gas with a prius over a 200,000 mile useful life. You decide if it will go that far, over how many years, and how much gas will cost. The 155 hp ice and better suspension might make the mazda aero more fun to drive.

 

As they say, YMMV. It depends on MANY factors.

Per Compare Side-by-Side, EPA rating is 29 mpg combined vs. Prius' 50. From CR's test results (nothing like EPA tests) Best & Worst Fuel Economy | Most & Least Fuel Efficient - Consumer Reports, Corolla gets 32 mpg overall vs. Prius' 44. Prius is the most efficient non-plugin vehicle at The Most Fuel-Efficient Cars | Best Cars for Gas - Consumer Reports.

 

If the money supply is fixed then as the price of gas goes up then the this additional cost of energy would take money from some other market ( this is refered to as a zero sum game in Game Theory) . In the real world the money supply is not fixed but expands or shrinks due to a variety of factors and forces( the money supply is defined by the Federal Reserve system as M1 M2 ...M5). While government spending often is blamed for contributing to inflation and reducing disposable income but what's not often said is that the central banks and Wall street speculation are also often the source of inflation as well. The central banks can expand the money supply by printing more money (and using it to buy government or corporate bonds) or by lending people money to buy homes or businesses. The federal reserve/Treasury can contract the moeny supply by withholding credit (to other bank as well as to businesses or people) or by destroying(burning/melting down) currency.

 

That wasn't the OP and US Today. It was bloomberg, and the piece the quote originally appeared in. I posted that link, which seems to contradict the POV of USA today. Toyota + Lexus hybrid sales are up in the US, not down as you would expect if Lentz was being on the level. I have my own speculation on why Lentz might want to talk down the projection, but I'll leave it to your theories.

There wasn't just talk, the Abe government is actively dropping the yen to try to help exports and help the Japanese economy and jobs. The yen has devalued from around 77 to 97 yen to dollar in a rather quick fashion.
I haven't heard anyone crying foul, but much speculation on whether it will help or hurt the japanese economy, and the rest of asia. It definitely helps toyota japan workers and management. I also don't really care how badly Toyota treats Australians, not to be calous but I don't think toyota's management cares much one way or the other. With increased competition on the prius, the speculation by businessweek, is that toyota will use incentives to get the numbers up. This isn't a bad thing in the long term if you are moving production to lower cost US. The weaker yen makes the incentives profitable. If on the other hand you are planning to keep prius production for US sales in Japan, to pay back the japanese government for the pro toyota policies, then incentives can backfire when japanese costs rise again, as they likely will.

Abe Euphoria Lifts Toyota, Weaker Yen Revives Japan Inc. - Bloomberg

 

I dispute this. Even the most overoptimistic Clinton supporters show him balancing the budget for less than half his administration. Other claimants, e.g. Whitehouse.gov, show the budget balanced only two years (FY99 & '00), with two more years (FY98 & '01, the latter partly under Bush) being positive only by including off-budget items. Can you say 'payroll FICA taxes' and 'Social Security Trust Fund'?

But according to the U.S. Treasury, Historical Debt Outstanding – Annual, the total national debt still increased every year under Clinton. By this standard, the most recent presidents to balance the budget were Eisenhower and Truman. While Clinton came much much closer to balance than anyone else since Eisenhower, I find it a travesty to label it 'balanced' at the same time the debt still climbed.

 

Although this is all rather entertaining, and you have provided a perspective, I have not heard before, let me explain myself, but then give you a chance and then get back on top. After this I will give you the last word.

I was talking about what goes on in households and how that affects the macroeconomics. Gas prices shot up by 1980 to be about 5% of average household income before taxes. The increased prices added to costs of transported goods like food. Those making less than average paid much more for gas and transportation expenses, and could not simply increase their money, so they had to cut back. The money going for imported oil simply left the economy, and households bought less stuff.

I learned economics after this period, and yes the government at first expanded the money supply to try
to stimulate the economy and make up for this money outflow. This only compounded the problem and caused more inflation. We then switched to a monetarist policy around 1980 with volker taking over the fed, but this took awhile to work out.

Clearly the central bank was at the heart of some of the inflationary policy in the late 70s. Today's qualitative easing has not caused inflation, as the fed is more responsible and learned from some of those old mistakes. It has weakened the dollar, which increases the cost oil and gasoline. Many including myself do not like QE, but it is not inflationary. This time the government tried a temporary payroll tax holiday to get money out to the population. The intial figures say it did not work, but it will be years before we can fully analyse. The payroll tax holiday at least doesn't appear to have caused the harm that '70s policies did to the economy (wage and price controls under nixon, expansionist money supply under carter until he switched to volker).

I'm not sure why either of these policies would be helpfull in a time of changing oil prices.

It would seem prudent to reduce the effects of oil price spikes by

A) allowing oil to float in price so people will not over consume, and investments are made. That was finaly fixed in 1981. The full price of oil is not felt though, and many believe closing subsidies and/or raising taxes will help the market evolve away from petroleum.

B) Raise fuel economy of available cars. That was put in place by ford with cafe standards. This is a slow lever and the effect was not felt until the 1980s. These were then shelved until Bush/Obama put them back in place.

btw: The 3 years of highest average gas prices
2008 $3.25
2011 $3.51
2012 $3.61

EIA projects gas prices for the rest of the year at $3.56, and $3.38 for 2014.
Gas prices are not low, in 2013, they just are a little lower than last year, the highest of all time. Projections are that they stay above 2008 levels, which in historical context is high.

 

I agree...ymmv...it's just what we get in real world numbers. I get about 50 in either of my Prii year round average. Side by side I don't think there's many if any to compare to the Prius, there's some plug in's I don't think would compare if you couldn't give it a plug in break before the gas was consumed. Volt EPA range is 380 and a tank full is almost 10 gallons, essentially 38 mpg with a full charge on the battery. Those 10 gallons would take me 500 miles in my non plug in Prii. But...if the Corolla were used to compare to Prii as the non hybrid version of the Prius that's where I would stand based on our experience.