Fuel Prices Challenge Cars' Reign

By Steven Mufson and David Cho
Washington Post Staff Writers
Tuesday, June 10, 2008

Gasoline prices, which shattered the $4-a-gallon mark on average in the Washington area Friday, ranged as high as $4.39 a gallon for regular yesterday amid signs that cash-strapped Americans are changing vacation plans, consolidating errands, and turning to carpools and mass transit.

The average price of a gallon of gasoline nationally is now almost a dollar higher than it was a year ago, according to the Energy Department. And with crude oil trading at more than $134 a barrel yesterday, more gasoline price increases are probably in the pipeline as refiners and retailers attempt to pass crude oil costs along to motorists, industry analysts warn.

"The fear here is that we've crossed a Rubicon," said John Townsend, a spokesman for AAA. "Normally, prices plateau after Memorial Day . . . But I don't think we're going to get much relief this summer."

In a society nurtured on cheap gasoline, the high fuel prices are having disparate effects: the end of free pizza deliveries at major franchises, a plunge in the sales of sport-utility vehicles, a steep drop in the price of houses that are far from jobs or mass transit.

Federal officials have also reported the first decline in miles driven on U.S. roads since 1979, business at roadside convenience stores has slowed, and the tourism industry is bracing for a downturn this summer. Nationwide, about 8 percent of Americans say they have changed their commuting patterns and are taking public transportation, according to a survey conducted by NPD Group, a market research firm. The same share of respondents said they would vacation closer to home this summer because of rising gas prices.

The biggest U.S. airlines, squeezed by massive fuel costs, imposed domestic fare increases over the weekend, only to roll them back yesterday to avoid losing passengers.

After more than five years of petroleum price increases, American consumers appear to be expecting the worst. A CNN poll taken last week showed that 59 percent of Americans believe it is very likely that they will pay $5 a gallon for gasoline before the end of the year and that an additional 27 percent say it is somewhat likely.

Economists say these expectations make it more probable that people will change behavior rather than simply wait for a turn in the traditional up-and-down cycle of commodity prices. "People now realize that prices may come back down, but they're not going down to where they were," said Mark Zandi, chief economist of Moody's Economy.com. "We're going to have to live with higher energy prices for a while. And that's affecting their behavior and what they buy and don't buy."

For Rusty Davis, a handyman from Arlington, the high cost of gasoline is changing the way he runs his business. He has started to refuse jobs outside the county. When he does travel to jobs, he now takes his fuel-efficient car and leaves behind his work van, which gets only 12 miles to the gallon. He also used to do free estimates in person. Now he does them over the phone.

"Before, you just wanted the client to see your face so they would be more willing to hire you to do the job," he said. "You don't do those anymore. I'm more apt to give them an estimate over the phone to save on gas."

Economists fear that the steadily rising price of gasoline is eating into the money consumers have to spend on other items and that fuel prices could be a drag on an economy already weighed down with concerns about housing prices and the stability of financial institutions.

"It saps people's purchasing power," Zandi said. "If they have to spend more to fill their gas tanks and heat their homes, everything suffers." He added that he worries that "the surge in energy prices overwhelms the economy if we stay here for very long."

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