Compacts, small SUVs, and the future price of oil
Although a small SUV offers advantages a compact does not, there is the worry that the price of oil will rise drastically in the future as a result of which the small SUV will look in retrospect like a foolish buy.
The most pessimistic estimates regarding future oil and gasoline prices that can be found are 1) the price of oil will rise from the current $57 per barrel to $100 per barrel in 3 years ( http://www.npicenter.com/anm/templates/newsASoundView.aspx?articleid=10505&zoneid=55 ); and, 2) the price of oil will rise from the current $57 per barrel to $150 per barrel in 5 years ( http://westbynorthwest.org/artman/exec/search.cgi?cat=9&start=16&perpage=15&template=index/default.html ). Both these estimates assume the price of oil will grow at 21% per year. If the price of oil were to grow at 21% per year for ten years, in 2015 oil would be at $383 per barrel, which is 6.7 times the current price of oil.
This kind of projection should however be adjusted for inflation. A four percent annual inflation rate for things in general, is a modest level of general inflation to assume will occur side by side with such a gigantic increase in oil prices. It would be reasonable to assume that general inflation would be much more than four percent a year if oil prices were to increase so astronomically. If wages and prices in general were to rise by four percent a year over the next ten years, then in real terms the price of oil, would according to the most pessimistic projections rise by 21-4=17 percent per year over the next ten years, meaning in real terms the price of oil will rise from the current 57 per barrel to $274 not $383; 274 is 4.8 times 57. Thus since gasoline is now $2.32 per gallon you could expect, allowing for the general inflation that is kept up with by a general increase in wages, gasoline to rise from 2.32 per gallon to 4.8 times 2.32 per gallon or 11.14 per gallon by the year 2015. Coincidentally my off the cuff pessimistic estimate re the future of gasoline prices was that they would rise to ten dollars per gallon by 2015.
Suppose I project that I will drive 75 miles in a typical week. At 11.14 per gallon, a car getting 29 mpg like the Honda Civic, would require 2.59 gallons costing $28.85 per 75 miles; but a small SUV like the Honda Element would require 3.41 gallons costing $37.99 per 75 miles. Thus the difference in weekly cost between driving a Civic and an Element would be $9.14, or $1.31 per day. If using an Element I reduced the miles driven 24% from 75 to 57 miles I could pay the same price for gas weekly that I would pay using a Civic driving 75 miles per day.
Against this you have to balance the Element's having a safety rating superior to the Civic and the Element being more versatile than the Civic, useful for odd jobs, able to haul loads, and internally store scooters, bicycles, supplies and people who are awake or asleep.
The way I see it, in the future I could continue to be almost poor, or I could pull myself up to being well-to-do. The Element could be useful for a poor man in a bad economy in ways that the Civic is not, due to its versatility; a night spent in an Element could, especially in a bad economy, end up being much less expensive than a night spent in a motel. The Element could also be useful in ways the Civic is not for a well-to-do man, who is not under pressure re gas prices in a bad economy, because it has a higher safety rating than the Civic. The Element could be a useful tool, brought into a rich family by a not-rich man entering that family, a tool that compliments the transportation tools the rich family already has on hand.
Then you could take into account that when gasoline gets to be really expensive, a vehicle becomes something that people share in order to go places, so that they can share the cost of the gasoline required to go to the place they want to go to. If you look upon a Honda Element with one person paying for gas in it as having an mpg of 22, and a Honda Civic with one person paying for gas in it as having an mpg of 29, you could also look upon a Civic with two people paying for gas in it as having an effective mpg of 58, an Element with two as having an mpg of 44, a civic with three an mpg of 87, an Element with three an mpg of 66, a Civic with four an mpg of 116, and an Element with four an mpg of 88. Thus an Element containing two persons paying for gasoline has an effective mpg of 44, higher than a Civic with one person paying for gasoline in it at 29.
An Element is simply better able to transport two or more adult persons and their luggage in comfort and safety than a Civic is. The Element is roomier than a Civic, two people who are six feet tall can stretch out and lie down behind the back seats. You could say that the importance of safety in a car is doubled when there are two people in a car compared to one. Consumer Reports awards the Element a higher rating than the Civic for safety.
The most pessimistic estimates regarding future oil and gasoline prices that can be found are 1) the price of oil will rise from the current $57 per barrel to $100 per barrel in 3 years ( http://www.npicenter.com/anm/templates/newsASoundView.aspx?articleid=10505&zoneid=55 ); and, 2) the price of oil will rise from the current $57 per barrel to $150 per barrel in 5 years ( http://westbynorthwest.org/artman/exec/search.cgi?cat=9&start=16&perpage=15&template=index/default.html ). Both these estimates assume the price of oil will grow at 21% per year. If the price of oil were to grow at 21% per year for ten years, in 2015 oil would be at $383 per barrel, which is 6.7 times the current price of oil.
This kind of projection should however be adjusted for inflation. A four percent annual inflation rate for things in general, is a modest level of general inflation to assume will occur side by side with such a gigantic increase in oil prices. It would be reasonable to assume that general inflation would be much more than four percent a year if oil prices were to increase so astronomically. If wages and prices in general were to rise by four percent a year over the next ten years, then in real terms the price of oil, would according to the most pessimistic projections rise by 21-4=17 percent per year over the next ten years, meaning in real terms the price of oil will rise from the current 57 per barrel to $274 not $383; 274 is 4.8 times 57. Thus since gasoline is now $2.32 per gallon you could expect, allowing for the general inflation that is kept up with by a general increase in wages, gasoline to rise from 2.32 per gallon to 4.8 times 2.32 per gallon or 11.14 per gallon by the year 2015. Coincidentally my off the cuff pessimistic estimate re the future of gasoline prices was that they would rise to ten dollars per gallon by 2015.
Suppose I project that I will drive 75 miles in a typical week. At 11.14 per gallon, a car getting 29 mpg like the Honda Civic, would require 2.59 gallons costing $28.85 per 75 miles; but a small SUV like the Honda Element would require 3.41 gallons costing $37.99 per 75 miles. Thus the difference in weekly cost between driving a Civic and an Element would be $9.14, or $1.31 per day. If using an Element I reduced the miles driven 24% from 75 to 57 miles I could pay the same price for gas weekly that I would pay using a Civic driving 75 miles per day.
Against this you have to balance the Element's having a safety rating superior to the Civic and the Element being more versatile than the Civic, useful for odd jobs, able to haul loads, and internally store scooters, bicycles, supplies and people who are awake or asleep.
The way I see it, in the future I could continue to be almost poor, or I could pull myself up to being well-to-do. The Element could be useful for a poor man in a bad economy in ways that the Civic is not, due to its versatility; a night spent in an Element could, especially in a bad economy, end up being much less expensive than a night spent in a motel. The Element could also be useful in ways the Civic is not for a well-to-do man, who is not under pressure re gas prices in a bad economy, because it has a higher safety rating than the Civic. The Element could be a useful tool, brought into a rich family by a not-rich man entering that family, a tool that compliments the transportation tools the rich family already has on hand.
Then you could take into account that when gasoline gets to be really expensive, a vehicle becomes something that people share in order to go places, so that they can share the cost of the gasoline required to go to the place they want to go to. If you look upon a Honda Element with one person paying for gas in it as having an mpg of 22, and a Honda Civic with one person paying for gas in it as having an mpg of 29, you could also look upon a Civic with two people paying for gas in it as having an effective mpg of 58, an Element with two as having an mpg of 44, a civic with three an mpg of 87, an Element with three an mpg of 66, a Civic with four an mpg of 116, and an Element with four an mpg of 88. Thus an Element containing two persons paying for gasoline has an effective mpg of 44, higher than a Civic with one person paying for gasoline in it at 29.
An Element is simply better able to transport two or more adult persons and their luggage in comfort and safety than a Civic is. The Element is roomier than a Civic, two people who are six feet tall can stretch out and lie down behind the back seats. You could say that the importance of safety in a car is doubled when there are two people in a car compared to one. Consumer Reports awards the Element a higher rating than the Civic for safety.
posted by David Virgil at 12:24 AM
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