Study: Unemployment Rate, Gas Prices Predict Vehicle Demand

March 28, 2011
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At first glance, the auto market can look fickle from one month or season to the next. Some months Americans are more into thirstier vehicles; other months—like this one—we put down our wont toward trucks, and there's a rush on fuel-efficient small cars.

Now, two researchers at the University of Michigan's Transportation Research Institute (UMTRI) show that there's very much a relationship—and it probably has less to do with incentives and such than you might think.

Through some regression analysis, Michael Sivak and Brandon Schoettle, of the Institute's Human Factors Group, looked at data from October 2007 to February 2011 and found that the national unemployment rate and the average cost of gas account for about 83 percent of the variance in the average fuel economy of new cars.

From October 2007 until May 2008—the latter stretch falling in the middle of the steepest part of 2008's price spike on gasoline—the average fuel economy of purchased vehicles increased an impressive 1.6 mpg, from 20.1 mpg to 21.7 mpg. The average fuel economy then improved at a gradual rate through August 2009—as gas prices plunged, rebounded, then stabilized and gradually rose—then leveled off through the end of 2010, as unemployment levels steeply surged.

The trends definitely invite some further questions, and we the data in detail in the near future. For instance, when unemployment is high, is it that people tend to look at the cheapest cars, and fewer high-mileage hybrids like the Toyota Prius, or are the people who are out shopping are less fuel-economy minded? And why does volatility (a rapid price drop, for example) prompt people to look for more fuel-efficient cars but a measured rise in price over time doesn't?

It's no doubt a complex relationship, but one that could be put to use by automakers in better anticipating supply and demand for an auto market that might be a little less fickle than it appears.

[University of Michigan]

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