Forecast: Lower oil prices to boost global auto sales

By Hans Greimel, Crain News Service

TOKYO (March 6, 2015) — Falling oil prices will boost global auto sales 1.5 percent through 2019, with the biggest windfalls coming in North America, IHS Automotive said in a new forecast.

The outlook, offered during a conference in Tokyo March 5, translates to as many as 7 million more cars sold than would have been if oil prices had remained high and stable.

“There is an upside opportunity with lower oil prices,” said Mark Fulthorpe, director of light-vehicle forecasts. “There are 5 million to 7 million units that could be directly affected.”

The sudden plunge of crude prices, from levels above $100 a barrel last year, will bolster consumer confidence most in markets with low fuel taxes and less burdensome regulation, IHS said.

Taxes trim savings

For example, a $1 reduction in gasoline prices delivers a 33-percent discount on fuel at $3 a gallon, vs. a 17-percent discount in markets where taxes push pump prices to $5 a gallon.

As a result, low-tax North America will scoop up 39 percent of the oil-driven bonus demand. Europe and China will each account for 21 percent of that pie, while other markets trail, IHS said.

IHS predicts falling oil prices will bottom out in the second quarter of this year. But crude prices will rebound only gradually, returning to the $100 a barrel level after 2020.

For North America, windfall sales will average 680,000 units a year through 2019, Fulthorpe said. SUVs and crossovers will account for more than half the mix. The uptick could spur North American factories to crank out a half million more cars a year.

Hybrids hurt

IHS says cheaper oil will slow demand growth for alternative-drivetrain vehicles such as hybrids and electric vehicles (EVs). Lower gasoline prices mean it will take longer for consumers to recoup the premium they pay for those costly green technologies.

A customer who pays $20,000 extra for an EV, for example, has to wait 10.1 years to recoup that amount when gasoline is $4 a gallon, but 27 years when it falls to $2 a gallon, IHS said.

Likewise, it takes a hybrid driver 6.1 years to pay off the $3,000 premium on a gasoline-electric car with fuel at $4 a gallon. The payback period grows to 12.3 years at $2 a gallon.

At $2 a gallon, however, the buyer of a direct-injection, turbocharged gasoline car equipped with start-stop technology can pay off that technology's $1,000 premium in just 8.1 years.

This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.