Teeth Gritted, Drivers Adjust to $4 Gasoline

NY Times

May 24, 2008

By JAD MOUAWAD and MIREYA NAVARRO
Correction Appended

Hating every minute of it, Americans are slowly learning to live with high gasoline prices. For a nation accustomed to cheap fuel, big vehicles and sprawling suburbs, the adjustments are wrenching.

Cory Asmus of Temecula, Calif., just bought a $4,800 motorcycle for his 20-mile drive to work so he could cut his gas bill to $8 a week, from $110.

Florian Bialas, a retiree who lives near Chicago, sold his 1997 Pontiac Sunfire for $3,000 and plans to give up his license when it expires in September. “I can walk to most places where I need to go,” he said.

And Debbie Gloyd of Cleveland has parked her Chrysler Concorde and started taking the bus to work. “I can’t afford these gas prices,” she said. “They’re insane.”

With the nationwide average price for regular gasoline closing rapidly on $4 a gallon, people are bracing for a summer of expensive driving.

As the Memorial Day holiday starts the summer driving season, record prices are provoking dread and upsetting vacation plans. A recent survey by AAA, the automobile club, found a rare year-on-year decline, of 1 percent, in the number of people planning to travel this summer.

Interviews with more than 70 people across the country suggested that the adjustments they were making, mental and otherwise, would last well beyond the summer. Americans have started trading their gas guzzlers for smaller cars, making fewer trips to the mall and, wherever possible, riding public transportation to work.

For years, it was not clear whether rising prices would ever cause Americans to use less gas. But a combination of record prices, the slowing economy and a tight credit market has beaten consumers down.

Gasoline demand has fallen sharply since the beginning of the year and is headed for the first annual drop in 17 years, according to government estimates.

The Transportation Department reported Friday that in March, Americans drove 11 billion fewer miles than in March 2007, a decline of 4.3 percent. It is the first time since 1979 that traffic has dropped from one March to the next, and the month-on-month percentage decline is the largest since record keeping began in 1942.

High gasoline prices, plastered on 20-foot signs from coast to coast, are turning into a barometer of the country’s mood.

“The psychology has changed,” said Sara Johnson, an economist at Global Insight. “People have recognized that prices are not going down and are adapting to higher energy costs. It’s a capitulation.”

Typically, gasoline sales rise before Memorial Day weekend. But gasoline sales dropped nearly 7 percent last week compared with the same week in 2007, according to an estimate by MasterCard.

Gasoline prices almost always rise in the summer, as demand increases. On Friday, gasoline prices reached yet another record, a nationwide average of nearly $3.88 a gallon. That figure was up 4 cents in one day and is 65 cents higher than this time last year, according to AAA. Diesel hit $4.65 a gallon on Friday, up $1.73 a gallon in a year.

The force behind high gasoline prices is the high price of oil, which is being driven up by soaring worldwide demand. Oil reached a record above $133 a barrel this week, nearly five times as expensive as it was five years ago.

All this has led to a vast transfer of wealth from American drivers to domestic and foreign oil producers. Every one-cent increase in gasoline prices means Americans pay $1.42 billion more a year for gas, according to Stephen P. Brown, an economist at the Federal Reserve Bank of Dallas. Nearly two-thirds of that goes to foreign producers.

In the first four months of the year, Americans spent $158 billion on gasoline. In 2003, just as oil prices started to take off, they spent $88 billion over the same four-month period, according to Michael McNamara, vice president for MasterCard’s Spending Pulse, an indicator of weekly gasoline sales.

Whether today’s high costs will translate into a permanent change in behavior remains to be seen, of course. The Energy Department expects gasoline sales to fall by 0.6 percent this year, the first drop since 1991, but it expects consumption to rebound in 2009 as the economy strengthens.

Still, analysts said that the hardship induced by today’s prices is getting close to the level reached during the oil shock of the early 1980s.

Americans spend 3.7 percent of their disposable income on transportation fuels. At its lowest point, that share was 1.9 percent in 1998, and at its highest, it reached 4.5 percent in 1981, said Ms. Johnson of Global Insight.

Still, despite the rise in energy prices, gasoline remains cheaper in the United States than in most industrialized countries. In France, for example, a gallon of gasoline costs about $7.70 at today’s exchange rates. Also, Americans pay less to drive a mile today than they did in 1980, once the impact of inflation and gains in fuel efficiency are taken into account, said Lee Schipper, a visiting scholar at the transportation center of the University of California, Berkeley.

Mr. Schipper estimates that the cost of gasoline for each mile traveled will be about 15 cents this year. That is nearly three times the low of 5.6 cents a mile reached in 1998, when fuel efficiency peaked and prices were at their lowest. But it is still cheaper than the record paid in 1980 of 17.1 cents a mile, adjusted for inflation.

The oil shocks of the 1970s and 1980s introduced the nation’s first efforts to curb consumption, including the first fuel efficiency standards and scaled-back speed limits. These had an impact on gasoline demand, which fell each year from 1979 to 1985. But then oil prices collapsed, political pressure evaporated, and many consumers lost interest in small cars.

“This is the wake-up call,” Mr. Schipper said. “We actually have a lot of choices, based on what car we drive, where we live, how much time we choose to drive, and where we choose to go. But you have built in a very strong car dependency. And when the price hits the fan, people have a hard time coping.”

For many people, higher energy costs mean fewer restaurant meals, deferred weekend outings with the family, less air travel and more time closer to home. Big-box retailers are suffering as customers balk at driving to the mall, airlines have slapped on steep fuel surcharges and carmakers have seen their sales slump. On Thursday, the Ford Motor Company announced production cuts because of sharply lower demand for sport utility vehicles and pickups.

In Los Angeles, Ron and Patricia Lowe spend more time at home on weekends, hanging out and barbecuing. They are also more likely to leave their house together now, scheduling fewer car trips and bundling their chores to cut the gas bill.

“If I go to the grocery store, and the mall and pick up some prescription, I do it in one shot,” he said.

As gasoline prices have risen to record highs, consumer confidence, as measured in surveys, has fallen to its lowest level since 1980.

“The whole gas price situation makes me so angry,” says Lissa Nash, 39, a single mother struggling to raise her two sons on a modest nursing assistant’s salary. To make ends meet, she has started working extra shifts at a suburban Chicago hospital, picking up whatever overtime is available.

“Rising gas prices end up hurting working, lower class people like me, who can’t afford it anymore,” Ms. Nash said.

The higher costs ripple through the economy in unusual ways. In Round Lake, Ill. $3 still buys a wriggling tangle of night crawlers in a dirt-filled Styrofoam cup. But Marty Badegian, the 72-year-old owner of the Red Worm Ranch Bait Shop, says he might have to raise prices after his vendor imposed a $5-an-order gas surcharge.

“The gas prices are killing us,” Mr. Badegian said.

In Encinitas, Calif., Ryan Andrews, 23, and Tara Driscoll, 21, arrived at the beach red-faced and sweating from riding their bicycles in 80-degree weather.

They had bought their bikes the previous week and had just cycled six miles from home. Ms. Driscoll said she had gotten the bicycle so she could ride to work every day, a commute of two miles, instead of driving.

“It just makes sense,” she said.

At Sim’s Bowling Alley and Lounge, in Des Plaines, Ill., Robin Sebastian, 51, who tends bar there, sounded bitter the other day after recalling that she had just paid $46 to fill half a tank in her 1994 Buick Regal.

“There are too many politicians’ hands in our pockets, and too many crooks in the oil companies,” said Ms. Sebastian, an Army veteran who served in the Persian Gulf. “I’m all for helping other countries, but we need to help our people here in the U.S. first.”

Christopher Maag, Karen Ann Cullotta and Will Carless contributed reporting.

This article has been revised to reflect the following correction: