Gas prices recently reached record highs across America, with costs surpassing more than $5 a gallon in some states, the most it’s been since 2008, so it’s no surprise that those in the automotive industry might be feeling slightly concerned about how this will impact the car market. Here, we explore why gas prices have soared and what impact the climb in costs will have on the sector.
Why are gas prices so high?
As it stands, the growth in gas prices is a hot topic of discussion for those working in the automotive sector – and it doesn’t look like things will be changing any time soon. In fact, experts warn prices are expected to stay high for weeks, if not months. But how did we get here in the first place?
USA sanctions on Russia
It’s no secret that the Ukraine war has had a huge impact on the rise in gas prices, with the Russian invasion causing at least a 20 percent spike in costs over the past few months. But why?
In early March, President Biden announced a US ban on Russian oil and gas imports, to show support for Ukraine and take aim at Russia’s main revenue source. And although the USA imports less than 10 percent of its oil and gas from Russia, it’s the larger global oil market is having an impact on gas prices in America. Simply put, with so many countries sanctioning Russia, this is influencing how Russia exports oil to the rest of the world – and global gas prices (including those in America) are reacting to that.
Cuts to oil production
Let’s rewind to the peak of the pandemic, when demand for gas and oil dropped, due to less drivers being on the road. In response, oil-producing nations including the likes of Russia slowed down production – in fact, they slashed it by 10 million barrels, which equates to 10 percent of the global gas supply. And it wasn’t until summer last year that oil-producing countries started to boost production again, and the trouble is, they’re still playing catch up, which has had a direct impact on the price of gas in America.
As we come out of the pandemic, the economy is starting to recover (with the vaccine rollout and Americans feeling safer about going out again), which is having a direct impact on demand for gas. In fact, it was back in March 2021, that prices began to slowly increase again, and since then, they have soared – and continue to do so.
What do high gas prices mean for the car market?
A boom in electric vehicle sales
With gas prices rocketing, we will no doubt expect to see electric vehicle sales grow at the same time, simultaneously. At more than $5 a gallon, we’re sure more consumers will consider an electric vehicle as their next purchase. After all, the cost of fueling a car is pretty much always more expensive than charging one, especially at the moment.
Of course, it’s no secret that electric vehicle sales have been steadily increasing over the past few years but with the hike in gas prices, the pace of sales has got the potential to quickly accelerate. In fact, in just a few months the figures are already changing, with research from May showing that 40 percent of Americans would expect to own an electric car in the next five years, a rise of eight percent (from 32 percent) since February.
Aside from the hike in gas prices, President Biden’s plans to ensure that half of all new vehicles sold in the United States will be electric by 2030 will also be driving demand for electric or hybrid cars.
Higher demand for more fuel-efficient cars
If we reflect on similar situations in the past, a hike in gas prices will no doubt lead to car buyers choosing small and more fuel-efficient cars. That makes sense, right?
Recent statistics show that around 80 per cent of all vehicle sales across the country are fuel-thirsty SUVs and pick-up trucks. Just 12 months ago, industry experts expected this number to increase further over the next three years by 2025, but could the hike in gas prices influence this? Has America’s love for big, gas-guzzling SUVs and trucks led to our country being hit hardest by the rise in gas prices?
Is this an opportunity for dealerships to analyze and revamp their stock? Should dealerships consider filling their fleet with fuel-efficient and smaller cars, instead of big SUVs and pick-up trucks? We think so. SUV and truck drivers will definitely be feeling the sting when it comes to growing gas prices and dealerships should be mindful of this.
High demand and limited supply: An opportunity to hike prices?
The trouble with the current car buying market is while the demand is there, it’s still tricky proving for shoppers to get their hands on a new car. Yes, consumers might be looking to purchase an electric vehicle or a more fuel-efficient set of wheels, but the fact remains, that supply is still limited. After all, just because gas prices are rising, it doesn’t necessarily mean all of the other challenges the industry is facing have magically disappeared. The industry is still experiencing major setbacks as a consequence of the semiconductor shortage, which was triggered by the pandemic. What’s more, we can’t forget the possibility of Russia responding to Western sanctions by halting supplies of nickel – a vital component used in lithium-ion batteries and essential for electric vehicles – and palladium, which is used in catalytic converters for gas or diesel-powered vehicles.
Does the current market give dealerships the chance to increase the price tags on certain cars? With demand there, but vehicle availability still limited, it wouldn’t come as a surprise to see dealerships hike up the cost of the cars they have on site – especially electric, hybrid and more fuel-efficient models.
Consumer reluctance to buy
Of course, we can’t shy away from the fact that buyers will undoubtedly be more cautious when it comes to buying their next car.
Dealerships still need to be mindful that shoppers might be slightly more hesitant to purchase a car, which could mean your business looking at its strategy. Is it time to rethink the way you target shoppers? Should you explore more creative techniques so you appeal to indecisive customers? What’s more, does your dealership’s sale strategy need a shake-up? Is it time to create more attractive vehicle packages for consumers, by way of encouraging them to make a purchase? How about, as well as selling vehicles, your dealerships looks at ways to optimize their service department? Tap into those who are keeping their current vehicle and might be looking for spare parts, or repair work.
One thing for sure is that a hike in gas prices will no doubt be playing in the back of shoppers’ minds if they’re thinking about buying a car, or their current lease is coming to an end. And dealerships will be pushed to adapt their strategies in line with such hesitations.
It’s time to jump on buying trends
As a business in the automotive industry, you’d be forgiven for feeling slightly concerned about the hike in gas prices and how it could impact your company.
As a dealership, you need to be jumping on evolving car trends and shine a light on the most attractive vehicles you have for sale. It’s time to showcase those smaller, more fuel-efficient cars you have in stock and demonstrate to consumers exactly why they should be buying one given today’s current climate.
For SnapCell customers, use the app to seamlessly create walkaround shots, virtual test drives, and videos of your fleet, specifically highlighting electric, hybrid and smaller, more fuel-efficient vehicles available. Provide a commentary for customers, explaining just why these vehicles could be a cost-effective option for buyers.
Why not tap into potential buyers by using your Customer Relationship Management (CRM) system to identify which of your previous consumers might be ready to make their next purchase? Proactively engage with target audiences by sending customized videos using the SnapCell app – and remember to acknowledge the timing of the email, and how, according to your records, they might be considering getting a new car. Honestly, creating personalized, visual communications for customers is sure to get your dealership one step ahead of the competition.
Become a SnapCell user
The past two years have been nothing short of a bumpy ride for the automotive industry and if your dealership is to succeed in such unpredictable times, you need to be proactively responding accordingly. As a dealership, you simply need to get yourselves in the driving seat by adapting your sales and marketing strategy in line with evolving shopping trends and buyer behavior.
Utilizing SnapCell is sure to get you in the fast lane, as the prices at the pump continue to creep up. Created by automotive professionals, especially for automotive professionals, SnapCell is bursting with user-friendly features that make it easier than ever for your entire team to seamlessly create engaging videos. Whether you’re showcasing your fleet of electric vehicles, taking customers for a virtual test drive, or reaching out to potential buyers, the SnapCell app is your must-have sidekick selling tool. Schedule your free demo today.