Tuesday, September 30, 2014

Still buying premium? The end of high octane gasoline

In most parts of the world, when you pull up to the gasoline pump there are two and sometimes three octane choices: regular (lower octane), midgrade, and premium (higher octane).

The price difference between regular and premium is roughly 35 cents per gallon in the US at the moment. The current price of regular in the US is $3.35 per gallon and premium is around $3.70 per gallon on average across the country.

The number of vehicles requiring premium has fallen from 21 percent to 17 percent over the past 10 years, according to Edmunds.com. But the number recommending premium, has risen from 2.5 percent to 12 percent over the same period.

So in summary, in the most recent 2014 model year, manufacturers require or recommend premium gasoline for 29 percent of US vehicles. Most consumers ignore this and buy regular gasoline. The data proves it - only 12 percent of gasoline sold in the US is premium or midgrade (see chart below).

Why is this happening? Manufacturers and vehicle purchasers are using a 'recommendation' of premium gasoline to play the MPG ratings vs horsepower game.

It goes something like this: a vehicle manufacturer wants to list the highest possible miles per gallon (MPG) rating as it is a big sticker on the window of a vehicle at a dealership. They get the high MPGs in part by putting smaller lighter engines in vehicles. However, customers also want performance. So manufacturers attach turbochargers and other premium gasoline demanding technologies to these small engines in order to keep horsepower levels up.

After the horsepower availability ego trip at the car dealer at the time of purchase, most vehicle purchasers go home, choose to go without the power, go with the cost savings, and buy regular.

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