Small is beautiful

At a time when other automakers are hemorrhaging money, Honda just posted an unexpected boost in their profits, thanks to the Civic and the Fit.  This fits in with my personal observation at used car sites--that it's very hard to come by a small used car in good condition for love or money.  And also with data showing that those cars, which used to be a drug on the market, are suddenly selling for a substantial premium over book.

Richard Posner wonders if this isn't a little it irrational:

I wonder, too, whether the recent decline in U.S. gasoline consumption doesn't represent to some degree an irrational panic reaction. To take a huge loss on the sale of your SUV in a market that is depressed because so many other people are doing the same thing at the same time is unlikely to be justified by the gains from the improved gas mileage of the car you buy with the modest proceeds of the sale. Likewise, driving a substantial distance to save a few cents a gallon on the gas you buy is unlikely to be worthwhile. A recent article suggests that people fixate on the price of gasoline because unlike most regularly purchased items, such as food, gasoline is purchased separately from other items so that its price is not buried in a bill for multiple items.

I think the answer is "probably"; most people could probably save money by buying an SUV.  SUV prices have an expectation of higher gasoline prices built into them, when the best estimate of the future price is probably the present price.

On the other hand, that panic is not necessarily a bad thing.  The panic will make our economy more fuel efficient, which means that we will be less vulnerable to future oil shocks--one of the reasons that it took so long for oil prices to hit our wallets this time is that during the 1970s, the economy dramatically reduced the amount of oil it took to produce a given amount of GDP.  OPEC knows this, which is why they've been resisting Hugo Chavez's lunatic calls to throttle back on the taps--the end result of this kind of panic is usually a sudden price collapse.