The Real Price of Gasoline and the Price of Cars Relative to the Price of Trucks
The Graph of the Week is from the article by Walter McManus "The Link Between Gasoline Prices and Vehicle Sales" in the January 2007 issue of Business Economics.
Overall, cars have higher fuel economy than trucks do, so we expect fuel prices to be positively related to the car/truck price ratio. It is worth noting, however, that the vehicles classified as trucks are highly diverse, ranging from large SUVs that have very low fuel economy to small crossover vehicles that look like SUVs but are based on cars and have very high fuel economy. We should not be surprised if the effect we are looking for is small. Nonetheless, Figure 2, which plots the data on the real price of gasoline and the price of cars divided by the price of trucks, seems to have the predicted positive correlation, certainly since 1999. However, given the variety of offerings in the light vehicle market, aggregate data are not definitive; and the best approach to capturing the effect of fuel prices on automobile prices would seem to be a combination of cross-section and time-series data that take into account those characteristics that vary across brands.
The entire article is online for NABE members.