The effect of the oil crisis on the growth in the ownership and use of cars

Abstract

Since the oil crisis of 1973, a number of studies have been made in various countries of the effects of the rise in petrol prices on the level of traffic flow, but rather fewer have attempted to delineate the complex chain of reactions within the car market set off by this impulse. We attempt to do this, using data from the UK. Since 1966 during the prediction stage of the first London Transportation Study it became obvious that low income and high income households had different rates of growth of car ownership, mainly because low income households bought cheap, old cars which vary in quantity and price differently from expensive, new cars. The Greater London Council therefore sponsored a study of car prices by age and size, starting from 1957 annually, and since the oil crisis, evaluated monthly. This has enabled us to examine the strong change in trend that had occurred, with large cars depreciating 15% per annum more than the smallest. The quantities of cars of each size registered each month are available from national statistics and this enables us to say that the previous 1% per annum increase in car size was arrested, with new cars becoming substantially smaller. A model of the car market has been developed which relates on the one hand the price distribution of cars by age, and on the other hand the price. distribution of the stock of cars owned at each household income level. Via the expenditure on car purchase at each household income level and the distribution of the length of time between purchase and resale of cars, a fully dynamic model has been developed to relate expenditure flow and stock. This enables us to test the effect of different trends on the dynamic equilibrium in the car market. The implications of the two trends noted above on the prediction of future car ownership growth are discussed, with the standstill since the oil crisis attributed to petrol prices via the split in household expenditure between purchase and use.