Gas prices break summer patterns: what that means for car demand

Unusually stable summer gas prices reflect an ongoing shift to affordable transportation among consumers, creating opportunities for dealers with fuel-efficient inventory.

The data: Typically, gas prices skyrocket in summer due to a jump in demand, driven by vacation plans and enjoyable weather. This year, however, is different.

• According to federal data, gas prices this month are lower on both a year-over-year and month-over-month basis. 

• While the declines appear to have frozen, with fuel costs being virtually unchanged compared to a week ago, this time of year usually sees a spike in prices due to an increase in driving.

• Last week, the average price for a gallon of gas was $3.45, with a low of $2.93 spotted in Mississippi and a high of $4.81 seen in California. In 2023, the average cost was $3.52 per gallon.

Takeaways: While dealers are only occasionally affected by shifts in gas prices, the unexpectedly stagnant behavior of fuel demand this year raises some important questions for the retail automotive sector.

• Why are consumers driving less? With gas prices being lower this year, we can assume that drivers aren’t leaving the house as much since demand typically drives cost. But why is this the case? On the one hand, summer weather has been particularly hostile this year, so that may be keeping people inside where it’s cool. However, stubborn inflation and interest rates are also depressing demand for non-essential products across the board. This being the case, it’s more likely that people aren’t traveling as much in an effort to save money.

• Will this have an effect on car demand? We’ve already seen a shift away from bigger, “gas-guzzler” models throughout the last few years. With car owners now driving less, it seems likely that this trend will continue well into the future as consumers prioritize saving at the pump. For dealers, this is the perfect time to take advantage of the increase in hybrid, fuel-efficient and electric vehicle demand.

Other considerations: While car owners seem likely to continue focusing on affordability, there are other elements to take into account as well. 

• Volatility: Gas prices are notoriously unpredictable, to the extent that they’re typically left out of inflation calculations. That being said, it’s possible the dip in fuel costs is only temporary. After all, summer has only just started and, as mentioned before, weather may be playing a role in keeping drivers at home.

• Long-term implications: At the same time, it’s safe to assume that, as EVs and hybrids become more commonplace, demand for gas will continue to decline, forcing sellers to cut prices even further. It will be interesting to see how consumer preferences react. Will they continue to purchase eco-friendly models without taking notice, or will lower costs at the fuel pump drive demand back up for ICE vehicles? The latter option seems increasingly likely as EVs (excluding the used market) continue to cost more than other models.

Bottom line: Fluctuation in gas prices are a relevant component of vehicle demand, making it crucial for dealers to account for this factor in their sales strategies. Should fuel expenses remain low, emphasizing efficient models may help drive sales in spite of a slow travel season.

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