The Effect of Fuel Price Changes on Fleet Demand for New Vehicle Fuel Economy

Benjamin Leard, Virginia McConnell and Yichen Zhou
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Benjamin Leard: Resources for the Future

No 17-25, RFF Working Paper Series from Resources for the Future

Abstract: New vehicle purchases by private companies and government agencies, or “fleet” buyers, represent a significant percentage of overall new vehicle demand in the United States. Yet little is known about fleet demand for new vehicle fuel economy including how it responds to fuel price changes. In this paper, we examine economic reasons of why fleet managers might adjust vehicle purchases in response to fuel price changes. Using unique disaggregated data on fleet and household registrations of new vehicles from 2009 to 2016, we estimate how fleet demand for new vehicle fuel economy responds to fuel price changes. We find that fleet purchases of low fuel economy vehicles increase relative to high fuel economy vehicles when gasoline prices fall. Contrary to anecdotal evidence that fleet demand is unresponsive to fuel price changes, our finding is consistent with fleet buyers taking into account capitalization of fuel costs in the second-hand market. We compare the fleet demand response to household demand during the same period and find that, on average, household and fleet buyers respond to fuel prices changes in similar ways. This result justifies an assumption widely used in the vehicle demand literature and the fuel economy valuation literature. We also find, however, that the response to fuel price changes varies across the types of fleet buyers: rental companies respond strongly to fuel price changes, whereas commercial and government buyers are unresponsive.

Date: 2017-12-07
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Journal Article: The Effect of Fuel Price Changes on Fleet Demand for New Vehicle Fuel Economy (2019)
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