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$4 gas reinforces trend toward lower U.S. fuel consumption

April 18, 2012
Washington Post
By Steven Mufson

Are American motorists finally changing their gas-guzzling ways?

As prices have neared and in some cases topped $4 a gallon, drivers have cut their consumption of gasoline to its lowest levels in a decade, driving less and buying cars that are more fuel-efficient.

The adjustment has slowed the climb in gasoline prices, which until last week had risen for 10 consecutive weeks, and could preserve some money for Americans to spend on other items as the economy struggles to recover more convincingly.

“Over the last four weeks, motor gasoline product supplied has averaged 8.6 million barrels per day, down by 4.0 percent from the same period last year,” the Energy Information Administration (EIA) said last week.

In the Washington area, there has been an increase in applications for carpooling under the Commuter Connections program, which links people seeking to share rides. Applications rose 20 percent last year and 10 percent in January and February, in each case closely tracking the increase in gasoline prices, according to Ronald Kirby, director of the department of transportation planning for the Metropolitan Washington Council of Governments.

The response to $4 gasoline is reinforcing a trend toward lower fuel consumption. This will be the third year in the past five with historically high oil prices. Even before the latest price spike, gasoline consumption had dropped 6 percent from 2007 through 2011, the EIA said.

The Federal Highway Administration adds that the number of vehicle miles driven over a 12-month period ending January was lower than in any year since 2004.

‘A new mind-set’

These may be signs that consumers are adapting to $4 gasoline, that may explain why retail sales are advancing in the face of high pump prices.

“I think that there is a little bit of a new mind-set that has happened with our customer over the last five years,” Charles Holley, Wal-Mart’s chief financial officer, said at March retail conference. “I think $3, $3.30 whatever it is would have been a disaster, as you know, four or five years ago. Today, I think the customer has probably reset expectations and their budgets around that higher gas price.”

With President Obama’s imposition of stricter fuel-efficiency standards, it’s possible that U.S. petroleum use — which is mostly for transportation — has peaked and might decline gradually even as economic growth resumes.

That’s good for people’s pocketbooks.

Gasoline purchases made up 4 percent of total consumer spending last year, notes Mark Zandi, chief economist of Moody’s Analytics. That’s more than the 2.3 percent level when crude oil prices cratered in 1998, but it’s a lot less than the 6 percent level in 1981 when an earlier oil price shock rocked the economy.

“I’ve been surprised, at least so far, that $4 a gallon hasn’t done more damage,” Zandi said. “So far, it doesn’t seem to have done any.” He said the improving job market was one reason. Another is that the warm winter lowered people’s heating bills and balanced out total household energy costs.

Republicans could have a difficult time turning gasoline prices into a pivotal election issue. Zandi said, “My sense is that if this is the peak for the year, it fades as a political issue.”

The trend toward more efficient cars is having a tectonic impact. A University of Michigan study this month said that the fuel efficiency of cars and sport-utility vehicles sold last month jumped to 29.6 miles per gallon in a combination of city and highway driving, up 4 miles a gallon since October 2007.

Last month, General Motors sold a record number of vehicles getting 30 miles or more per gallon. Jim Cain, a GM spokesman, said that three years ago only 16 percent of the vehicles it sold got 30 miles per gallon; last month, more than 40 percent surpassed that level of fuel efficiency.

Although sales of hybrid cars have been lackluster and GM has trimmed its sales expectations for its electric vehicle, the Chevrolet Volt, it has a dozen other vehicles that get 30 miles a gallon or more.

“We have to plan the business assuming that gas prices could be higher,” said Cain, who noted that federal fuel-efficiency standards were also getting stricter. “But, fundamentally, everyone likes to go farther on a gallon of gas, and no one wants to pay more at the pump.”

He said: “As you go forward in time, 40 [miles per gallon] is going to become the new 30. That’s good for the consumer. . . . It will keep personal mobility affordable even if gas prices rise.”

Big companies are also figuring out ways to cut their transportation fuel use. FedEx, which uses about 1.5 billion gallons of motor fuel a year, is trying to cut its use by 20 percent by 2020. In 2005, it had 18 hybrid vehicles; last year, it had 408. That represented just 1 percent of FedEx’s fleet. Still, the fuel efficiency of the fleet has improved 14.1 percent in that period, FedEx spokesman Scott Fiedler said.

Danger remains

High gasoline prices still pose a danger for the economic recovery, though.

Lower consumption isn’t enough to offset the recent rise in gasoline prices, which, after easing off last week, have climbed 66 cents a gallon, or 20 percent, since the beginning of the year, according to the automobile group AAA. Although the national average price for a gallon of regular gasoline was $3.90 at the beginning of the week, the EIA noted that consumers on the West Coast have been paying more than $4 a gallon since the end of February and that retail prices have topped $4 in cities such as Chicago and the District for weeks.

Prices have also risen for services that depend on oil, such as air travel. FedEx has increased its fuel surcharge to 8 percent for ground deliveries and 14 percent for air shipments, close to its historic highs.

Duncan Mac Naughton, Wal-Mart’s merchandising and marketing chief for the United States, said at the March 28 CIBC retail and consumer conference that “our rising gas prices . . . is bad news for the customers.” The high pump prices “have a direct impact on the disposable income for our customer across the United States,” he said.

And Zandi worries that a disruption in world oil markets could drive prices higher. “There’s a lot of room for concern here. I still view it as the number one threat to the recovery,” he said.

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