Existing users please login

 

Home / Personal Finance

Analysis

Upside to $4 a Gallon Gas Redux

 
By Dunstan Prial
FOXBusiness
     

    It’s a hard sell trying to make the argument that gas at $4 a gallon is a good thing for the U.S. Too many already-struggling Americans are finding it that much harder to make ends meet.

    But as a wake-up call to certain inevitabilities, the price run-up has been very effective.

    “I don’t want to call this a good thing because people -- especially in lower income households -- are getting hammered by this,” said Robert Dye, senior economist at the PNC Financial Services Group.

    There is, however, a “silver lining to the run-up,” according to Dye, and that’s “the increased awareness that a shift in national energy policy has to occur.”

    As Dye noted, the presidential candidates have both embraced changes to the energy status quo.

    Democratic hopeful Sen. Barack Obama recently shifted his position on off-shore drilling, acknowledging the broad public support for tapping into domestic reserves. Other influential Democrats have followed suit.

    Meanwhile, likely Republican nominee Sen. John McCain has taken the once risky position of supporting construction of additional nuclear plants. Less risky has been McCain’s push for U.S. automakers to increase their output of fuel flex vehicles, or cars that use gasoline substitutes such as ethanol.

    And just this week New York City Mayor Michael Bloomberg announced he wants to power the nation’s largest city using wind turbines.

    It’s hard to believe any of these proposals would have seen the light of day if not for gas reaching $4 a gallon.

    Now let’s consider shifts in behavior at the grassroots level.

    The soaring price of gas led consumers to quickly turn away from gas guzzling SUVs and pickup trucks, and the U.S. auto makers had no choice but to respond to the new demand for smaller more fuel efficient cars.

    Each of the big three U.S. car makers – Ford (F), General Motors (GM) and Chrysler – have announced dramatic overhauls of their product lines.

    “The car companies have done a pirouette in terms of their production priorities, shifting to smaller cars and fast tracking development of hybrid and electric models,” Dye noted.

    And Americans are driving less: travel on all roads and streets fell by 12.2 billion miles, or 4.7%, in June from a year earlier, and cumulative travel in 2008 through June was down 42.1 billion miles, or 2.8%, from the same period in 2007, according to the U.S. Department of Transportation.

    Driving is down most significantly in the West and Southeast, two areas where gas prices were especially high.

    And carpooling – seemingly long forgotten since the end of the 1970s gas shortage -- has surged in popularity.

    The Denver Regional Council of Government’s RideArrangers service reported that the number of people who entered its database from April through June -- 1,264 potential carpoolers --  represented an 83% increase over the same three-month period in 2007.

    "The price of gas was really forcing people to look for ways to make changes to their personal finances. Carpooling is one easy way to make a difference to the environment, to congestion, as well as to personal budgets," said Sarah Carroll, marketing coordinator for the Denver Regional Council of Governments. 

    Responding to pleas from their hard-hit constituents, elected officials in the suburbs surrounding Kansas City, Mo., are calling for increased bus service in and out of the city. Similar demand for public transportation is increasing around the country.

    “I absolutely would call it a behavior changing event,” said Rye, of gasoline’s rise to $4 a gallon.

    The question is whether or not these behaviors will remain ingrained in consumers’ daily lives if the price of gas falls significantly.

    Denver's Carroll is optimistic that behaviors have changed for the long-term.

    "Our hope is that people will see how easy it is to make that change," she said. "Sometimes it takes something [like $4 a gallon gas] to serve as a catalyst to make people try something new."

    But even if consumers return to the convenience of their own cars, in all likelihood those cars won’t be the same gas guzzlers so popular during the past decade. 

    Rye said “the Prius to Hummer ratio is still going up.” And as long as it it, the car makers, so financially battered by their Japansese competitors who saw the benefits of fuel-efficient cars years ago, are expected to respond to that shift by pumping out smaller, cheaper cars for the foreseeable future.

     

    Fox Business Video