From the Blogs

Two great posts came online in the last couple weeks which I thought were worth sharing. The first is Thomas from Mean Green Cougar Red with his thoughts on the recent uptick in truck sales:

Now that gas prices have fallen from last summer’s peak of $147/barrel to their current price of around $40/barrel, you just knew that this was going to happen: those gas-guzzling SUVs that nobody wanted when gas was $4 a gallon at the pump are now a hot item again:

The turnabout “shows the fickleness of the market,” says (Chrysler President Jim) Press, speaking after a J.D. Power and Associates conference here for auto dealers.

Guessing what people want has been just as hard for dealers. AutoNation, the country’s largest dealer chain, struggled last summer to stock enough hot-selling fuel misers on its sales lots.

Back then, CEO Mike Jackson says, buyers were trading their Cadillac Escalade SUVs for Toyota Prius hybrids. Now Jackson says he’s canceling orders for such smaller vehicles and ordering more trucks instead.

The change shows how fuel prices rule the car business. In May, 56% of the vehicles sold were cars, not trucks. By last month, the share of cars had fallen to 47%, according to Autodata.

Gas prices averaged $1.845 a gallon by Sunday, less than half their summer peak of $4.114.

The market is becoming “almost schizophrenic” for big or small car demand, says Tom Libby, analyst for Power Information Network. He cautions against writing off small vehicles.

“People are making comments like ‘Prius is dead,’ ” he says, which isn’t true.

Ford Motor is adding a slew of small cars, including several derived from vehicles made by its European unit. General Motors has major small car plans, too.

Longer term, “The price of gas is going to go up,” Ford Vice President Mark Fields says. Figuring out what buyers want amid wild gas price swings “is like trying to time the stock market.”

It simply amazes me that people are basing a decision as big as a vehicle purchase on something as volatile and ethereal as the price of gas. Certainly, other factors are coming into play as well – it’s a buyers market for vehicles right now, after all – but it’s clear that the price of gas is the major factor when it comes to the decision between a smaller-fuel efficient car and a larger, gas-hungry SUV. Do the people who are buying these large vehicles really think that last summer’s gas price spike was a one-time occurrence and that fuel will remain cheap from now on? If people really think that, they’re being rather naive.

Petroleum is currently cheap because of the worldwide economic slowdown: the demand for oil is simply weak. The fact that demand for gasoline is typically low during the winter is also playing a role. Gas prices will certainly increase later this spring when refineries go offline to switch to summer blends and the summer driving season approaches. And worldwide demand will eventually increase as well, once the economy gets cranking again (although I personally don’t foresee it doing so before 2010). There are still tens of millions of people in China and India who want to buy cars, after all. Just because they can’t afford to do so right now doesn’t mean that they’ve gone away.

In fact, once the economy gets rolling again, the pain at the pump could be even worse than what it was last summer. As fuel prices fall, oil companies reduce production investments such as the maintenance of existing oilfields or the development and exploration of new ones, simply because it’s not profitable to do. That, however, means that when demand does eventually rise, there could be a “supply crunch” due to the lack of available and ready-to-go reserves. Gas prices would likely skyrocket, and that full-size truck or SUV that looks like a good deal right now will become a money-sucking albatross around the neck of its owner.

Hopefully, the people currently buying these large vehicles are doing so with the understanding that this scenario is a true possibility sometime in the future.

I agree with Thomas’ sentiments here. I can’t understand for a second why anyone who wouldn’t have bought a truck this summer would buy one now, the price of gas is not going to stay low for long. Then again, one should never underestimate people’s ability to be foolishly optimistic if it justifies the ‘splurge’ their craving.

Meanwhile in a more hopeful spirit, Christof wrote a great feature on the new commuter rail line in New Mexico.

I’ve seen a lot of commuter rail (and I mean a lot: 15 of 18 systems in the United States), so it’s not that easy to impress me. But I rode New Mexico’s Rail Runner for the first time last week, and I was blown away. I’d go as far as to call it the best recent commuter rail startup in the United States.

Why?

Start with the most important criterium: it goes where people want to go. It connects Santa Fe and Albuquerque, the two most important cities in New Mexico; half the state’s population lives in that corridor. The Albuquerque station is Downtown, right on Central Avenue, next to offices, lofts, and restaurants.

…

Two years ago, I noted 8 habits of highly successful commuter rail lines. The Rail Runner manages them all:

1. The ideal commuter rail line improves on current transit options.
2. The ideal commuter rail line makes use of unused rail capacity in a corridor where highway capacity is scarce.
3. The ideal commuter rail line serves more than commuters.
4. The ideal commuter rail line has a city at each end.
5. The ideal commuter rail line offers good connections to multiple employment centers.
6. The ideal commuter rail line serves long trips.
7. The ideal commuter rail line connects to local transit.
8. The ideal commuter rail line has stations you can walk (or bike) to.

Rail Runner is a remarkable achievement for a small state. Albuquerque is the 60th largest metro area in the country, on par with Dayton, OH and Omaha, NE. Santa Fe is the 282nd, smaller than Muscles Shoals, AL. The whole state has only 1.9 million people, fewer than live in Houston city limits. In that context, 4,000 riders a day is pretty good (It beats Shore Line East into New Haven and Altamont Railway Express into San Jose, CA, for example.)

Morever, the whole thing was implemented in only five years: in August of 2003, Governor Bill Richardson asked the department of transportation and the local council of governments to study commuter rail and the legislature to fund it. The first trains ran to the southern suburbs of Albuquerque in July 2006, and the line to Santa Fe opened in December of 2008. A small team did all of this, with minimal bureaucracy, and they based what they did on a lot of data: for example, fares were decided on not based on an arbitrary fare box return ratio but on phone surveys of what people were willing to pay. There’s a great report (84.3 MB Microsoft Word) available from NMDOT on the Railrunner website with a lot of background.

Christof makes an important observation here: a small team with effective leadership built a good new piece of transit in a short ammount of time. That sounds a lot like our main street light-rail line. Unfortunately, the bureaucracy has bloated to nightmarish proportions for the METRO rail expansion. Even if they deliver the best system in the world, a lot of people are going to remember the sluggishness of METRO’s phase 2 and hold it against them in perpetuity. This is a classic example of why we need less government overhead and more private-sector intitiaves. While government can occasionally pull off a lean, well executed project, it’s certainly not the norm. Even places where it has happened once find the feat difficult to replicate.