One of the stated reasons for a Big Three automaker bailout would be to help them transition to the production of more fuel efficient vehicles. This strategy assumes that there will be huge consumer demand for such cars — this assumption needs to be questioned, particularly if the anticipated vehicles are costly hybrids. It’s one thing to anticipate this demand with oil at $150/barrel and quite another at $50/barrel.
This morning offered a good lesson on the rationality of consumers of energy and transportation. Today was the first business day that parking rates increased at MBTA (Boston’s regional transit authority) train station parking lots. My small station has a limited number of spots (about 150). As fuel prices rose earlier this year, drivers chose mass transit over driving in to Boston, and the lot filled earlier and earlier. When gas prices were at their peak, the lot generally filled by about 6:45 a.m. As gas prices have declined, the lot generally didn’t fill until about 7:00 a.m. Starting today, the higher parking fees will raise the annual train commute cost by $500. At 7:00 a.m. this morning, the lot was a third empty. As the relative cost of fuel-efficient mass transit increased, and the cost of driving has decreased, consumers have acted rationally and switched back to driving.
Consumers may talk about the desire for fuel efficiency, whether through mass transit or hybrids, but they act rationally. The market for fuel efficiency is clearly price sensitive. At current fuel prices, the market for costly hybrids will likely be limited. Using taxpayer money to finance the production of these vehicles should be questioned.