Web Video: How automakers and car buyers are responding to low gas prices

Jan. 13, 2015 AT 11:22 a.m. EST

Since last year’s Detroit Auto Show, gas prices have dropped by nearly a third. With the new lower prices, demand has gone up for big new SUVs and sedans, but automakers have also switched gears to develop more fuel-efficient cars. Gwen Ifill speaks with John Stoll of The Wall Street Journal about the tension between the two trends and convincing car buyers to think long-term.

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Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.

GWEN IFILL: One year ago, when automakers held their big show in Detroit, a gallon of gas went for an average of $3.31. Now, as the auto show gets under way again, it’s dropped by a third, all the way down to $2.13 a gallon.

And that presents some intriguing challenges this year. On one hand, manufacturers like GM are creating more fuel-efficient cars, like the Volt, a new electric-powered concept car which is designed to get 200 miles from a single charge.

But on the other end of the spectrum, big new SUVs and sedans are rolling off production lines for buyers now less worried about gas prices.

John Stoll is the global auto editor for The Wall Street Journal, and he joins me from Detroit.

After all the bright, shiny things at the auto show, John, what are the trends you’re seeing?

JOHN STOLL, The Wall Street Journal: Well, the trend is definitely back toward big trucks and SUVs, in terms of the conversation right now that we’re having about the immediate environment.

The economy is doing well. Gas prices, as you mentioned, are down to $2 a gallon or less, and there is a lot of what a lot of automakers think is a natural progression toward the SUV and truck body style in most of America. So they’re catering to that right now.

At the same time, you have this tension. While dealers want more and more trucks and SUVs, regulators want more vehicles like the Chevrolet Volt or the Nissan Leaf, or the Tesla Model S, vehicles that can run on electricity or batteries and — or can get significantly better fuel economy.

So that is really — sort of that tension is defining this auto show more than anything else at this point.

GWEN IFILL: So, when you walk the floor of the auto show, are the things that are most exciting the great, big luxury SUVs or are these new little cars that you can plug in, or is it a little bit of both?

JOHN STOLL: Yes, I think it’s somewhere in between.

I think most exciting project that you see on the show floor — or I should say products — you have some super cars. It’s back to — these are the first cars that are sort of taken out of the product lineup when things get bad. These super cars are back.

I will give you an example. Ford has the G.T. or they’re calling it the Phoenix is back, and this is a super car made from carbon fiber. What is important about this car is, it has a 3.5-liter turbo engine. It’s built for good gas mileage, which is a whole new conversation in that sort of vehicle. But it kind of shows exactly where the automakers are going.

Even in the high-end, super luxury, super performance, they know that fuel economy is important. The regulators are going to start asking them in two years and then another decade down the road, where are you at on a lot of the mandates that we put into place? And even super cars and pickup trucks have to get more fuel-efficient.

GWEN IFILL: So those mandates will stay in place even if it turns out — with the understanding that gas prices could bounce back?

JOHN STOLL: Yes, I think the midterm review that the government is going to have with the auto industry up here in 2017 is going to be very — it’s becoming more and more important.

Obviously, with $2 a gallon, it’s very hard to get customers to buy into the proposition that hybrids and electric vehicles make, which is you pay more up front. You pay for the battery. You pay for the capability. You pay for the engineering. You pay a little bit more weight in the car.

But the payoff is at $4 a gallon, you start getting that money back. At $2, it takes a lot longer to get that money back. And consumers understand that and want capability and want to buy the vehicles that, you know, aren’t as expensive to fill up in an era like this.

So a lot of this depends on how long the gas prices last. Somebody like Mike Jackson, the head of the AutoNation, the largest dealer in the U.S., says this could last a sustained period of time, more than a year. And a lot of the automakers are being much more cautious and saying, hey, we could see a bounce-back very quickly, that they’re prepared for something nearer-term.

But, regardless, regulators and automakers are going to have to have a discussion about what they want for the long term. Do they want a more predictable higher gas price or do they want an economy that is rolling with a lower gas price?

GWEN IFILL: Well, that’s the dilemma. How does a company or who does an auto buyer plan for the long term? What kind of strategy do you employ in trying to decide what kind of choices to make?

JOHN STOLL: I think it puts both in a bind.

I think the auto — the buyer right now is saying, hey, is it time to for me to buy an SUV? And you’re filling up a vehicle that maybe right now is $40 to fill up, let’s just say, if it’s a 20-gallon tank. Two years from now, if it goes up to $4 per gallon, that doubles. Right?

It’s hard to make that decision. And right now, the buyer is speaking and saying, about a year ago, we had about 45 percent of the mix were trucks and SUVs. Now it’s about 55 percent. You’re seeing what they’re saying.

The automakers have to spend far more than they ever did before. Ten years ago, they were designing cars with a guess on where gas prices were going. They would say, well, maybe it will be $2, maybe it will be $4 down the road. Most of them were projecting that prices were going up.

Now regulation is the rule of the day. The regulators are the ones that are determining where the automakers are innovating toward. That’s why you see vehicles like the Chevy Volt. Yes, it’s innovative. Yes, it takes on Tesla. And most people agree that this is what the auto industry should be doing. But the near-term reality is, it doesn’t make sense in a $2-a-gallon gasoline environment.

GWEN IFILL: Well, it’s going to be interesting to watch everybody decide what choices to make.


GWEN IFILL: John Stoll, the global auto editor of The Wall Street Journal, thank you.

JOHN STOLL: Thanks, Gwen.


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