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Unemployment rate and cost of gas predict fuel economy of purchased vehicles

ANN ARBOR, Mich.—Average fuel economy of purchased new vehicles has increased by more than 12 percent since late 2007, due mainly to high unemployment and gas prices, according to a University of Michigan study.

The average fuel economy of purchased new light-duty vehicles (cars, pickup trucks, minivans and SUVs) improved from 20.1 mpg in October 2007 to 22.6 mpg in February 2011—the highest it has ever been.

A new report by Michael Sivak and Brandon Schoettle of the U-M Transportation Research Institute found that the national unemployment rate (currently just below 9 percent) and the price of gasoline (currently above $3.50 a gallon) together account for 83 percent of the variance in the average fuel economy of new cars purchased.

"Our present findings are consistent with those in our two previous studies on the relationship between the unemployment rate and the price of gasoline, and the average fuel economy of purchased new vehicles," said Sivak, research professor and head of UMTRI's Human Factors Group. Sivak and Schoettle performed a regression analysis on monthly data from October 2007 to February 2011 to examine the relationship between the unemployment rate and the price of gasoline on one hand, and the fuel economy of purchased new vehicles on the other hand.

Average fuel economy improved rapidly from 20.1 mpg in October 2007 to 21.7 mpg by May 2008, but dropped to 20.7 mpg by November 2008. It then improved gradually through August 2009, but leveled off thereafter through the end of 2010.

Meanwhile, the price of gasoline peaked at around $4 in summer 2008, while the unemployment rate peaked at about 10 percent in fall 2009.

"Overall, our results provide support for the hypothesis that decisions of U.S. buyers concerning the fuel economy of purchased new vehicles are strongly influenced by both the unemployment rate and the price of gasoline," Sivak said.

 

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