TodayApril 16, 2022

Higher gas prices changing consumption and consumers

It’s all about the monthly cost

Heidi is thinking of changing her health care from Blue Shield to Kaiser. The difference is $60 a month, which is about the same as a full tank of gasoline in her Honda CRV.

Heidi’s fixed costs have gone up seven percent in the past year, while her income as a teacher has only gone up three percent in the same period.

It doesn’t help Heidi that the Department of Energy (DOE) has explained that part of the problem is the refinery utilization. For the past seven years, refinery utilization has averaged 89.1 this time of year. The actual first quarter of 2008 utilization averaged 84.7 percent. Heidi is now shopping locally and thinking to herself, “do I have to make this trip? Can I wait till Wednesday when I have to be there anyway.”

Heidi doesn’t need the DOE to tell her that the United States used 160,000 barrels per day less this
week than we did last week. She, herself, has decided not to drive places to visit friends. “Last month I bought my organic produce at Trader Joes, 30 miles away, and then went to REI and the teacher’s store. Now, I have a delivery service that brings me locally grown produce every two weeks. They charge me $5 a delivery, which is less than I could go to the store and buy them myself.”

Gasoline has helped create a sustained downturn in the economy. Money has gotten so tight that unless someone needs a new car, they’re not buying one. A friend of Heidi’s couldn’t afford the gasoline for her seven-year-old SUV that she purchased new for $45,000. In May she bought a new Toyota and got a $9,000 trade-in.

J.D. Power’s Power Information Network (PIN) says that year-over-year sales have decreased by 13.9 percent. The United States is on target to buy 14.3 million vehicles in 2008.

The sales report from Tom Libby, Senior Director, Industry Analysis, the PIN isn’t good, “There was a massive shift in consumer demand away from gas-guzzling sport utilities and pickups to smaller, more fuel-efficient crossovers and cars. Cars accounted for 59% of all new-vehicle sales in May, up from a 51% share a year ago.”

“This shift has lowered the average new-vehicle transaction price in May by 2% to $26,471, which reduces revenues for automakers even more.”

“Among the 26 vehicle segments tracked by J.D. Power and Associates, only 3 posted gains in May: subcompact cars (such as the Toyota Yaris); midsize cars (such as the Honda Accord); and compact cars (including the Honda Civic). These 3 segments together captured 42% of the entire market in May.”

“The Ford F-Series, which had been the industry’s sales leader for decades, placed just fifth in sales volume in May behind 4 Asian car models. This may be the first time in history that 4 Asian car models have topped the monthly sales charts.”

J. D. Powers’ bottom line on the forecast is, “Sales in May have raised fears that the market is heading for a crash this year after maintaining relatively high levels since the beginning of the decade. Howe’ver, with so much of the recent weakness characterized by abnormally soft fleet sales, there is reason to expect that sales still might recover and return to first-quarter rates of 15.0+ million unit’s during the second half of the year. At present, J.D. Power and Associates have retained it’s annual 2008 sales forecast of 14.95 million units and will wait to see what June brings before considering any further revisions.”

The question on Heidi’s mind, and everyone else’s, is will this last?

It’s not looking good.

Saudi Arabia increased oil production by 300,000 barrels a day in May, and a Saudi official confirmed Saturday that the country would add another 200,000 barrels a day in July ” for a total of 9.7 million barrels a day by July. This is a 500,000 barrel per day increase if you add up the 2 increases. It would have been very helpful if Nigerian militant groups hadn’t created havoc in Nigeria, causing a loss of 345,000 barrels a day.

The DOE said that the International Monetary Fund reported that in 2005, oil export revenues accounted for around 90 percent of total Saudi export earnings, 70-80 percent of state revenues, and 44 percent of the country’s gross domestic product (GDP). In order to defend its most significant source of economic growth, Saudi Arabia is increasing it’s oil production capacity to 12 million barrels per day (bbl/d), by 2009.

I was watching CNBC the other day and they said that Americans’ energy consumption grew by 3 percent, while China’s grew by 40 percent in the same year. Americans use 25 gallons of oil a day, while China only uses 2 gallons of oil a day, but their gasoline usage is growing. Other developing nations, such as India, are continuing to fuel the flames of high gasoline prices. China just increased its gasoline price by 18%, so we’ll see if that will decrease China’s usage of gasoline.

Diesel fuel costs 68% more this year than it did last year, so anything you buy will have that cost tacked on top of it.

Food will be going up in 6-9 months because of the Iowa floods, where we won’t see bushels of corn this year. According to an Associated Press article today, 2 million or more acres of corn and soybean fields in Iowa, Indiana, Illinois were lost by the flood.
And if we have a bad hurricane season we could have even more problems.

What is coming out of this energy crunch is a change in consumption patterns and a change in the way of life. People I talk to say they are starting to clean their garages out and do some of the projects they bought years ago but were too busy to do. Heidi is seeing this in her friends and experiencing it herself, “I’m spending more time at home than I have ever been. If I do spend money it is on home projects that I can’t do myself.”

Lou Ann Hammond

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a founding member of the Women's World Car of the Year #WWCOTY, and board member of the Women in Automotive.