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Have U.S. Drivers Reached Filling Point of No Return?

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Have U.S. Drivers Reached Filling Point of No Return?

June 17, 2008

It took some time, but Americans are responding to rising energy costs by driving smaller cars and cutting back on miles they log on the road.

But why now, with gasoline fetching $4 a gallon, instead of a year ago, when it pushed past $3, or in 2004, when it pierced $2? Energy prices have climbed steadily for the past five years, but only recently have there been any real signs of conservation.

“I think we’ve reached a tipping point,” said University of California, San Diego, economist James Hamilton. “There are a lot of hard numbers that show that we’ve actually reached a point where people are responding.”

The volume of cars on U.S. roads began slipping in November below year-ago levels. The Federal Highway Administration’s latest figures, for March, show U.S. drivers logged 11 billion fewer miles than a year earlier. That is a 4.3% drop and the biggest-ever year-over-year reduction in miles driven.

A fall in gasoline prices might reverse the trend. But the last time the U.S. saw such a lasting decline in traffic volume was when gas prices surged in 1979. In the years that followed, the U.S. saw a reduction in energy consumption that wasn’t reversed until the early 1990s.

The term “tipping point,” made fashionable after Malcolm Gladwell’s 2000 book of the same name, became part of the academic vernacular after a 1971 paper in which Nobel laureate economist Thomas Schelling showed how white families leaving a neighborhood as black families moved in induced other whites to leave as well.

While the term has come to refer to any point when a gradual change quickens and becomes irreversible, Columbia Business School economist Geoffrey Heal said there has been a behavioral shift in energy consumption that is analogous to what Mr. Schelling described. “If enough people like you ride the bus, you’ll be more willing to ride the bus,” he said.

For the past four years, Ann Arbor, Mich., has encouraged people to “curb” their cars in May and take other forms of transportation. For the first three years of the program, an average of 800 people participated. This year, 1,482 did.

“You get enough people taking the bus or getting on their bicycle, more people get the sense that it’s not such a crazy idea,” said Nancy Shore, director of getDowntown, a group devoted to easing congestion in Ann Arbor.

Mr. Hamilton said the tipping point on gasoline came when prices started pinching consumers and businesses enough to force change. He calculates that U.S. expenditures on oil in the first quarter, when crude averaged $98 a barrel, came to about 5.2% of gross domestic product, up from 3.5% in 2005. With crude now fetching more than $130 a barrel, oil’s share of GDP is getting closer to the peak of 8.3% hit in 1980.


The persistence of high energy prices plays a role. It takes time for consumers to make changes that lower energy use. That isn’t so much because people first shrug off high energy costs. They can and do react quickly. But the most important factors in energy-consumption changes come only with time — buying a new refrigerator or a smaller house or trading in a sport-utility vehicle for a smaller car.

“What we’re seeing now is prices have been high for a while and consumers have become convinced high prices are here to stay. That’s given them time to make changes, such as the car they buy,” said economist Christopher Knittel of the University of California, Davis. “That has larger effects than, ‘Well, I’m just not going to drive to the mall this week.'”

As a percentage of total U.S. auto sales, sales of light trucks — a category that includes SUVs — peaked at 55% in 2005. Since then, more people have been shifting to smaller vehicles. So far this year, light trucks have accounted for 47% of auto sales. After SUV sales fell in May, General Motors Corp. said it would shut down four truck and SUV plants and roll out more fuel-efficient vehicles.

That echoes what happened starting in 1979, though then it was rising sales of fuel-efficient imports. The average U.S.-made car got 19 miles per gallon at the time, and the average import got 27 mpg. Between 1978 and 1980, the share of cars sold in the U.S. that were foreign-made rose from 18% to 27%.

More than any changes in driving habits, it was that switch to more efficient cars that drove the reduction in gasoline demand that followed, said University of Michigan economist Lutz Kilian. Indeed, by 1983, U.S. traffic volume had rebounded above its 1978 peak, but gasoline demand was 11% lower.

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