Gas price has typically dropped in many countries. In past few weeks, the price of gas has reduced to $1.99 a gallon in Oklahoma City and also in US. After watching a high gas price for years, the gas price drop has finally become a pleasant surprise for every motorist. The AAA notes that even though in some places, where the price wars still haven’t degraded out, American public are now buying gas at least at a reasonable price that is less than $3 a gallon and at $2.443 a gallon in Missouri.
The reduction in gas price readily impacts in the number of car sales. A research reveals that the auto industry has really benefited with this. The good news for auto industry is that, some of the brands like SUVs, muscle cars such as 2015 Ford Mustang are sold in double, year over year. The gas price reduction also made the auto industry to bite the sales of subcompacts, battery-electric vehicles and hybrid a year ago with a new norm of $4 a gallon.
Even though, the gas price is a beneficial factor for the consumers, but it also became a problem within the industry. According to Mr. Raj Nair, the director of Ford Motor Co, this trend of downward fuel price creates a market distortion, if regulatory requirement do not match the demand of consumers. Further, Mr. Raj Nair explained the reason of this problem is that, the automakers like Ford have based their plan in conjunction of two factors, higher fuel price and the standard of tightened mileage and emissions. So the economy of combined corporate average fuel standard bits 34.1 mpg for both cars and trucks in 2016 that can be increased up to 54.5 mpg in 2025.
Difficult to achieve target with increased gas price:
Even though the gas price reduction is applied, yet it is considered as tough target plans. The people who belong to this industry, mention that if the price of gas continues to reduce for longer duration, it will be very difficult to meet the target. Reduction of gas price can cause problem in selling vehicles like electric and hybrid. For example, Detroit maker were able to sell only 5,584 of hybrid and plug-in model in the previous month which, is less than the previous record 6,889, last year. On the other hand, the demand of battery-electric vehicle is stable at this point. Research also says that the sale of Toyota Prius has dropped to 13.5% in November which was 11% in the previous months.
The gas price reduction could not help to match with the diesel fuel price. David Sullivan, a senior analyst of a consulting firm says that shifting in production plan can affect the market demand. A consumer’s mind is flexible and they are attracted to more and more benefits. So keeping this point in mind, the market demand can be changed. An example given by Volkswagen, buyers can be offered a whole family of powertrain alternatives for the redesigned Golf model that includes many benefits like mileage-minded gas engine, a diesel, high level of GTI version and a battery electric option. But it is not possible if the gas price remains low for a longer duration.
So from all the facts, we can see that continuous reduction of gas price can cause many serious challenges for the planners and regulators of automotive industries even though the consumers benefit from it.