Gas Prices Hit Home

Discussion
Aug 15, 2005
George Anderson

By George Anderson

Those who track such things will tell you that despite the record high prices consumers are paying at the pump today, when adjusted for inflation, the cost of filling up was
much more financially painful in 1981.

Back then, a gallon of gas cost $1.42 but in today’s dollars it was the equivalent of $3.04 a gallon. Today, putting a gallon of gas in your motor vehicle will run you, on average
across all grades, $2.53 according to the Lundberg Survey of 7,000 gas stations across the U.S.

For those who help put such financial issues in perspective, we say, “Who cares!?!”

Consumers today, even those who were paying $1.42 in 1981, don’t care that it was more expensive to fill up the tank back then. It’s 2005 and we’re living in the here and now.

Consumers, the 2005 variety, are really beginning to feel the pinch. While much of the emphasis to date has been focused on how high prices are hurting those on the lower rungs
of the economic ladder, more so-called affluent consumers are being adversely affected also.

Adolfo Fernandez, a Beemer driving resident of L.A., told The Associated Press, “I’m feeling it. I feel sorry for the people who really feel it and can’t afford it.”

Mr. Fernandez paid $2.97 a gallon for premium unleaded.

Moderator’s Comment: Has the price of gas risen to the point where it will really begin to impact consumer purchasing except at possibly the highest
rungs of the economic ladder?

Having recently come back from filling up the old Saturn and putting $21 and change on the credit card in one of the least expensive states to buy gas in
the country, we realized that we’re now paying $40 to $50 additional a week to drive than we were just a few years ago. Gonna need to sit down and look at the family budget tonight.


George Anderson – Moderator

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21 Comments on "Gas Prices Hit Home"


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Tim Smith
Guest
15 years 6 months ago

According to the Democrats, I am “borderline” rich. I disagree, but that is another post. I paid $2.45/gal yesterday. While not as high as some parts of the country, it is the most I have ever paid in my home town. I am certainly looking at combining errands/trips when possible and evaluating convenience purchases as well as some big ticket items. I agree with others who think the true impact will be felt in the coming months, right around the seasonal shopping period.

Mark Lilien
Guest
15 years 6 months ago

Perception is reality. The psychological impact is major, even if the inflation-adjusted increase is not, and even if the dollars and cents are minor compared to big-ticket items. Every driver knows his/her gas price, since purchases are very frequent.

Affordability is not the only issue. Many people, regardless of income, will spend an extra 10 to 15 minutes (by driving, walking through a large parking lot, waiting on line, walking through a huge store to get to a desired item, clipping and saving coupons, surfing the web, etc.) to save money, often only a dollar or two.

Many people feel poorer when they see higher gas prices. Feelings are not always 100% rational.

John Reinan
Guest
John Reinan
15 years 6 months ago

My $2.53 worth:

I don’t have data to back this up, but my strong sense is that people are driving even more today than they were in 1981. Metro areas have expanded 10-20 miles beyond the borders of 25 years ago; here in the Minneapolis area, communities that once were freestanding rural towns are now bedroom suburbs, inhabited by people who commute into the metro area.

And with the job-related dislocations of the past two decades, I think people are not only living farther out, but driving to more far-flung jobs. I’m a reporter, and I’ve done plenty of stories about people who commute 30, 40, and 50 miles (one-way) to work. I don’t think as many people drove as far to their jobs 25 years ago.

There may be data to prove me wrong floating around out there somewhere, but that’s my sense of things.

Ron Margulis
Guest
15 years 6 months ago

The real challenge will come in four months when consumers start getting their heating bills. If oil prices stay at their current levels, people will be paying about 20 percent more than last year, which was already high. If oil prices rise even further, there could be some real problems. I’m already planning to replace several windows and add insulation to my 100-year-old house.

Dean Cruse
Guest
Dean Cruse
15 years 6 months ago

Yes, consumers will change purchase behavior when faced with these prices. I know my family certainly has. At the same time, retailers, particularly the convenience store operators who sell the bulk of the gasoline, are feeling the pinch. Just because gas prices are higher, doesn’t mean they see the benefit.

Gasoline is the biggest category for the typical convenience retailer, making up 60% or more of sales. Margins on fuel are low and falling, often pennies a gallon. A convenience store can actually make more margin on a 12-ounce cup of coffee than they can on a 12-gallon tank of gas. And, with fewer consumers coming into the store to buy that coffee, the retailer will continue to struggle. If they want to survive and thrive, more now than even in the 80s, convenience retailers need to get better at convincing the consumer that it’s worth making the trip inside by offering the appropriate products and promotions to pull them in.

Warren Thayer
Guest
15 years 6 months ago

For the last gasoline price crisis, I lived in upscale NYC suburbs, and any pain was essentially invisible. Now in Vermont, I see the difficulty, and its effects, commonly. People are putting off day-to-day indulgences, taking vacations close to home and eating out less, from what I can see. That’s just anecdotal; I’ll be interested to see what the data says in a few months.

Ed Dennis
Guest
Ed Dennis
15 years 6 months ago
WOW! The sheer volume of replies to this question indicates that everyone is being affected. Everyone knows and everyone is preparing to deal with a new reality in gasoline prices. It’s kind of funny to see who is “up in arms” about this situation or rather who’s not. The liberals can’t squawk because they are blocking exploration efforts off our coast and in Alaska, won’t allow any new refineries to be built and heaven forbid someone mentions nuclear power. I guess they will just allow the poor to absorb the cost of this unfair reaction to world oil demand. Where are Jesse and Al? Where is the outrage at the way their constituents are being treated by the Chinese and Indians who want a half gallon of gas to put in their new motor bike? The fact is that we have allowed ourselves to be put into this box. Even though responsible methods have been available for years for rational energy planning, we have failed to address anything but short term political agendas. We are… Read more »
Jeff Weitzman
Guest
Jeff Weitzman
15 years 6 months ago
From a retail perspective, the higher prices may hit those outside-of-town retailers that are not warehouses. The lower prices of a Wal-Mart, say, may be easily offset by the cost of driving there versus going to the local retailer you pass doing other errands in town, or only a 1 mile drive. At the other extreme, loading up at a warehouse is a way to amortize the cost of the trip. Politically, higher gas prices intensify existing predilections. I see it as a strong argument that we must engage in a national effort to find alternatives and reduce our addiction to oil. We need a president who will lead us in that effort. Others see it as evidence that we need to drill anything we can to suck more oil out of the ground and lower prices. Living in the San Francisco area, the fleet of Priuses (Priuii?) I see on the roads attest to the impact the higher prices are having. A friend just added (not replaced mind you) a Prius to his BMW… Read more »
Mark Burr
Guest
15 years 6 months ago
There’s really an invisible threshold where the psychological and reality-based impact takes place. Having just seen the price rise from $2.53 to $2.79 this morning, I think it’s close. Daily increases of over 10% are simply too much for the consumer to take in all at once. At this point, the summer vacations are planned and nearing the end. Those untaken will likely not change, however, the consumer is left with sucking up another $50-100 or so in the budget to accommodate the increase. The real impact is not seen immediately. It will happen 3-4 months from now. At that point, the increases will have eaten in to several months’ budgets. It will be heating season and the cost this year is likely to be 30-40% higher based on early reports. The combined increases will then have taken hold and have their full impact. The combined psychological impact may accomplish what Bin Laden and his gang, along with other political opponents, both internal and external, have hoped for – a stalled economy. Sad but likely.… Read more »
Ben Ball
Guest
15 years 6 months ago

Just had this discussion with my spouse this weekend as we filled up our (OK — my) new pickup for the first time. This has been a planned purchase for many years, so it wasn’t like we didn’t know what we were getting into. But $50 for a fill-up is still an eye opener! Fortunately, the more level head in the family put things into perspective quick by observing that the $50 in gas would last a week, whereas we quite routinely spend $50 for dinner and consume that in less than an hour!

As others have observed, perception is the issue here and the fact is that the higher gas prices are making us feel less aggressive about spending. It takes some serious rational thinking to figure out that recent increases amount to a miniscule portion of most consumer’s disposable incomes. The oil companies are counting on the fact that our restraint, if not our dismay, will be short-lived and they are probably right.

James Tenser
Guest
15 years 6 months ago
Energy costs are up across the board. A news item this morning detailed how electricity, natural gas and gasoline costs are all approaching records, with no relief in sight. Utilities and oil companies are posting record profits in this environment, while airlines and automakers are hurting. We consumers pay either way. The Federal energy bill signed by Pres. Bush last week to some fanfare seems unlikely to change much. It’s packed with concessions to energy producers, with little incentive for the development of true alternatives. I believe we must commit as a nation to a new infrastructure that combines solar-electric panels on the nation’s rooftops with a network of hydrogen stations for fuel-cell powered automobiles. This would take a 10-year plan and a president who has the courage to tell the energy companies to invest in change or get out of the way. Meanwhile, retailers had best get used to the idea that they must divide a slightly smaller pie of discretionary consumer dollars. As rising transportation and manufacturing costs begin to impact merchandise prices,… Read more »
Karen Kingsley
Guest
Karen Kingsley
15 years 6 months ago

I’m with Ron. While the gas pump hikes are an “in your face” increase, the day-to-day outlay isn’t so extreme that it will cause massive shifts in behavior. (Although, I know several people who are unloading gas guzzlers.) I believe the heating bills will cause more of a dramatic shift in non-gas-related purchases.

In my humble opinion, the gas pump prices will cause more conservative driving habits. The heating oil prices will cause more conservative overall spending habits.

Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 6 months ago
Consumers at all income levels will ADJUST to the continuing increase in gas prices. But it will more than likely not be a change in permanent spending habits. Retailers will just see less bought. For example, instead of a pound of Boars Head roast beef, only one half pound may be bought. Or, instead of three pairs of jeans for Johnny, he is bought two pair; and gets a job after school for gas money, cloths, etc. Yes, the lower income groups will be impacted more. But brand product spending will continue with Hispanics; and less with lower income whites. We may see a shift to the retailers who are truly low priced in the marketplace, for essentials. We see a lot of Beamers, Audis, and Lexuses at Sam’s Club. And one may think, this is to buy in larger quantities….. whether a family of 3, or 6. Interestingly, movie theatres may see more people at the discount, or senior citizen showings. Just a shift in lowering the spending in certain areas, but still doing… Read more »
Jack Feinstein
Guest
Jack Feinstein
15 years 6 months ago

Yes, even the affluent are feeling the pinch and the negative affect will continue to trickle down to retailers. No matter what the economic situation is in the American family, there is a conscience decision-making process going on regarding taking the car out. Can we combine two or more stops at the same time? If not, does it make sense to only go to the one place? How many times that answer comes back “NO” will determine the impact on retailers.

Franklin Benson
Guest
Franklin Benson
15 years 6 months ago

Maybe I’m overly rational and calm, but I look at gasoline as being a portion of my monthly transportation expense. I have a $300/month car payment, $250/month for my wife’s car, together our insurance is about $100/month, and between the two of us we use about 45 gallons of gas a month. Meaning, that when gas was $2.00 a gallon, the transportation bill came to $740 a month, and now that gas is $2.50, we’re paying $763.

Those extra $23 bucks come to only a 3% rise in the overall expense.

I’ve got better things to lose my mind over.

Mark Barnhouse
Guest
Mark Barnhouse
15 years 6 months ago

Although prices are high now, and many are feeling the pinch, in a decade or so we’ll look back at 2005 as the good old days. Prices are on their way to much, much higher levels — they may not get there immediately, but get there they will. We are likely at the world peak oil production moment right now (although it’s not entirely clear yet that this is so); from here on out, oil production will begin to fall and prices will rise. At the same time, everything dependent on gasoline — that is, everything we buy at retail — will have to be priced much higher just to cover increased transportation costs from the source of production to the retail outlet. It’s not going to be easy for consumers or retailers to manage these changes.

David Follmann
Guest
David Follmann
15 years 6 months ago

Although we may shrug our shoulders at the price of gas and all agree that we have to live with it, we find ourselves living out a little less. Less movies; less dinners out.

Less will be spent in the states and more money will be going to foreign interests and investors that exploit the market.

Edward Herrera
Guest
Edward Herrera
15 years 6 months ago

The cost of driving our cars and heating our homes will cause smart people to become sensible. People adjust. Higher mileage cars and keeping the door closed.

If a car gets 20 miles to a gallon and you move to a 40 miles per gallon car, the cost of gas drops??? That is easy math. The people that can’t afford any incremental increases to their budget and do not have the resources to move to more efficient cars or houses will be pinched with their spending budgets.

Energy is costly to any economy and maybe more so to this one. Smaller will become better.

Bernice Hurst
Guest
15 years 6 months ago

Perception is, indeed, reality. But many perceive that they have no choice but to drive everywhere and that they cannot cut down on the miles they travel for work, play or shopping. They may not like it and they may complain a lot but wait until the next time they run out of milk or one of the kids wants to visit a friend or… I wonder how many people would wait for their milk until they need bread and a few other things as well or tell the kids to make new friends closer to home or, heaven forbid, let them out on their bikes!

Dan Colwell
Guest
Dan Colwell
15 years 6 months ago
Since Aug of 2003, diesel has risen 95%. What was once less than regular grade is now more than premium! This fuel is a bi-product of gasoline and is less costly to produce. California is a production area of several food sources, i.e. produce and seafood. These commodities need to be transported near and far. Costs of shipping product will be passed on to the consumer. $3.09 per gallon (this will be outdated by the time you read it) not only has an effect on the direct purchaser but the cost of goods delivered. Every time there is a cost increase, we hear of reputable reasons, e.g. “a refinery burnt down.” If any more of these “burn down,” I don’t think we’ll have any left. When they are back up and running…. do prices return to previous levels? Around 1970, sugar was found to be “price fixed”…. Something smells foul here and I think it is the smell of the oil companies mixed with a little of that foul gov. odor. The transporters of our… Read more »
Rose Jannuzzi
Guest
Rose Jannuzzi
15 years 6 months ago

When it costs $70-75 to fill up your Range Rover with premium gas, you can’t help but notice.

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