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New paradigm for both drivers and car companies By Morgan Housel
Total miles driven in the U.S. peaked in 2007 at a touch above 3 trillion a year. The latest figures from January put us at 2.95 trillion miles per year. That may seem like a trivial decline until you put it into historic context. It is, without doubt, the longest Americans have gone without growing their time on the road in at least four decades.
The decline is even larger when adjusted for the size of the population. Annual driving per capita has declined nearly 8 percent since 2005, or double the decline experienced during the recession of the early 1980s.
What's going on? There are four standard explanations, some more convincing than others.
The most obvious is the economy. Nine out of 10 workers drive to work, according to the Census Bureau. As employment fell by 9 million between 2008 and 2010, the roadways cleared up. One study by Texas A&M's Transportation Institute showed that the amount of time the average commuter was stuck in traffic fell 13 percent from 2006 to 2010, with most of the decline taking place during the recession.
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". In addition to INSPIRING stories, HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here. Gas prices are the other obvious culprit. Sticker shock at the pump likely caused most of the dip in miles driven in the '80s, but today it isn't as clear-cut. Nationwide average gas prices are lower today than they were two years ago, yet miles driven continue to fall.
Adjusted for average wages, gas prices today are nearly identical to prices that prevailed in late 2005, when vehicle miles traveled per capita peaked. The Congressional Budget Office parsed the data more carefully and concluded: "Recent empirical research suggests that total driving, or vehicle miles traveled (VMT), is not currently very responsive to the price of gasoline. A 10 percent increase in gasoline prices is estimated to reduce VMT by as little as 0.2 percent to 0.3 percent in the short run and by 1.1 percent to 1.5 percent eventually."
Rather than cutting back on miles driven, we have adapted to higher gas prices mostly through better fuel economy, which spiked around 2005 after plateauing for two decades.
Another explanation is a shift in where Americans live. Following decades of booming outward population growth from cities into suburbs, the past decade saw the return of urban living. Reuters reports that in 2010, 80.7 percent of Americans lived in urban areas as opposed to rural areas, up from 79 percent in 2000. Rural living is more conducive to long drives, so the shift explains part of the decline in vehicle miles traveled.
One of the more convincing factors fueling the decline in driving is demographics. Driving rates among different age groups are important because of an underappreciated demographic shift going on in the U.S. As the birth rate fell following the baby boom of the 1950s and '60s, the population of Americans in their 30s and 40s began declining early last decade. Census data show there are actually 4 million fewer "highly mobile" Americans ages 34 to 43 today than there were in 2005, when miles driven per capita peaked. The population of Americans age 74 and up, who drive the least, grew by 2 million during that period.
All of these shifts create opportunities for Ford, General Motors and Toyota, which have revamped their fleets to adapt to the new American driver. A decade ago, the manufacturer who could deliver the most headroom and horsepower per dollar won. Going forward, the fruits will go to whomever can deliver the most gas mileage and dependability per dollar. It is a new paradigm, for both drivers and car companies.
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Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.
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