Cheap cars in Asia, expensive gas everywhere (CNN)
NEW YORK (CNNMoney.com) -- The debut of the $2,500 car may be billed as
a mobility breakthrough for billions of people in the developing world,
but for U.S. motorists it could mean one thing: higher gas prices.
Rising demand from the developing world has long been cited as a main
driver behind the runup in oil prices. That demand will only get more
intense with staggering growth in car sales - and by extension, gasoline
use - in places like India and China.
"We'll get into a situation where we'll have to compete with them for
gasoline, $4, $5 a gallon, who knows how high we could go." said Peter
Beutel, an oil analyst at the consultancy Cameron Hanover.
He says that time could come much sooner than 2015, when light vehicle
sales in India are expected to total over 3 million - doubling 2006
sales - according to J.D. Power & Associates. In China they're expected
to nearly triple - to over 17 million - roughly on par with projected
sales in the United States.
That huge growth doesn't even begin to scratch the surface of potential
car buyers in those countries though. The 2 billion-plus combined
populations of India and China could one day dwarf the 300 million
potential car buyers in the U.S.
China is expected to nearly quadruple its fuel consumption for motor
vehicles by 2030, according to the Energy information Agency. In India
it's expected to rise nearly three-fold.
By comparison, growth in the U.S. is only expected to be about 40
percent, although fuel use in the U.S. will still be more than twice
that of China thanks largely to the bigger vehicles we drive.
Sales of all types of cars and trucks are growing in India and China -
as they are in other developing economies like Mexico, Brazil and
throughout the Middle East.
But small, super-cheap cars are important because they are marketed to
people who don't have cars. Earlier this year India's Tata motors
introduced the Nano, a two-cylinder, four-person sedan that gets 50
miles per gallon and is priced at $2,500. China's Chery car company has
the slightly more expensive QQ, and Nissan and Renault are reportedly
considering similar tiny models.
While the vehicles are efficient - certainly more efficient than
gas-guzzling SUV so popular in the U.S. - experts say their effect on
gas consumption will nonetheless be significant for two reasons.
First, the people that buy them will mostly be trading in motor
scooters, which get much better gas mileage especially due to their
ability to whiz through Asia's traffic-clogged streets, said Lee
Schipper, a fellow at EMBARQ, the World Resources Institute's Center for
Second, these cars are seen as gateway vehicles. The ultimate goal of
the car companies is to move the consumer up the supply chain into
bigger - and less efficient - rides.
Environmentalist are uneasy criticizing countries that are basically
following the development model of the West. But in addition to raising
gas prices for everyone, they say the rate of growth will put the
countries' roads under serious stress, make cities less livable, and add
We've become utterly auto dependent and now we're trapped in our car,"
said John DeCicco, an automotive strategies fellow at Environmental
Defense. He sees cheap cars creating a vast new constituency for cars
and road expansion.
India's Tata, which builds the Nano, did not respond to an email seeking
comment. China's Chery could not be reached.
But Gloria Bergquist, a spokeswoman for the Alliance of Automobile
Manufacturers, said cars in developing counties are far more efficient
than cars in the U.S. were just 20 years ago. She also defended the
automobiles role in society.
"Modern life couldn't exist without the mobility automobiles provide,"
said Bergquist. "Access to jobs, healthcare...they really form the basis
of our quality of life."
The mobility cars afford is not just relegated to developed nations as
evidenced by the skyrocketing sales projections. The Chinese, Indians,
Brazilians and others want these things too.
But if they're going to follow the West's development model, some argue
that maybe it's better they use cars that get 50 miles a gallon.
"It was going to happen anyway, and I'd rather see them in these than in
vehicles that get 20 miles a gallon," said Michael Robinet, vice
president of global vehicle forecasts the research firm CSM Worldwide.
Robinet also wasn't convinced these cars will compete directly with U.S.
drivers for gasoline, as refining blends often vary country to country
and refining bottlenecks in the U.S. are a big reason gas prices are so
But the the speed at which customers in developing nations are snapping
up these cars, and the sheer size of the market, come with an urban
planning challenge commensurate in scope.
"If they go to fast down the road of cars, it will take decades before
they are finally able to calm the traffic," said the Schipper.