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Fuel Efficiency: Does Anyone Really Care?

According to new research, it seems that car buyers are less concerned with buying a fuel-efficient vehicle, and more focused on purchasing something more affordable.

In laymen’s terms, people will buy a cheaper vehicle instead of one with better gas mileage.

What Does the Data Say

A study sent out by the National Bureau of Economic Research came to this conclusion: car buyers are not concerned about the savings in fuel if a vehicle’s price is well beyond what they are willing to pay.

They either don’t take the time to think about the potential fuel-savings of a higher priced car, or it simply doesn’t matter as long as they receive the lowest monthly payment for a new vehicle.

A portion of the study states that “for the 2011-2012 model-year vehicles, we find that consumers are indifferent between a $1 increase in discounted future fuel costs and a $0.38 increase in the upfront vehicle purchase price.” Confused? Thought so.

Assuming this data is mildly accurate, consumers are completely fine with spending an additional $380 for a more affordable car now and foregoing the future $1,000 in savings due to better fuel-efficiency.

What Problems Does This Cause

If car-buyers are indifferent about a car’s fuel efficiency, then this eliminates the incentive for manufacturers to produce such vehicles. For example, if customer “A” is willing to pay more overall money for a cheaper immediate purchase, it would make sense that manufacturers would be more incentivized to produce more fuel-efficient cars.

Since consumers obviously don’t care about saving even a small amount of money, they would eventually purchase the more expensive vehicles. But this just simply isn’t the case.

What’s really interesting is that it costs about the same to produce a small fuel-efficient car as it does a large truck or SUV with lower fuel mileage. Since the data demonstrates that consumers would rather buy a less expensive larger vehicle, manufacturers are inclined to sell more trucks and SUVs.

The incentive to produce more fuel-efficient cars disappears. There’s just simply more profit in selling larger vehicles.

What Does This Mean for the Future

Research predicts that electric cars will rule the roads in a decade or two, so this current issue may not be relevant forever. But companies can easily crumble in 20 years. It should be interesting to see how the indifferent attitude of car buyers affects the automotive industry.

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