Fuel Prices Challenge Cars' Reign
$4 Gas Transforms Buying Habits, Affecting Everything From Vacations to Pizza Orders

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."

Zandi said energy costs -- including electricity, gasoline and heating -- now account for about 6.5 percent of the average household budget. For the poorer half of the nation's households, energy costs are gobbling up close to 10 percent of family budgets.

Although the $4 barrier has symbolic importance, the bite out of household budgets is real. AAA calculates that the gasoline cost of commuting from Washington area suburbs to the District has increased sharply over the past year. The cost of the 44-mile round trip between Fairfax City and downtown Washington has risen to $8.93 a day from $6.78 last year for a commuter driving a car with average fuel efficiency. The cost of the 88-mile round trip between Frederick and the District has risen to $17.86 a day from $13.24.

In the past two days, the highest price for regular in the Washington area was $4.39, at two stations on Virginia Avenue in Northwest D.C. The local average yesterday was $4.09, according to AAA.

As a result, people have been trimming their driving.

According to the Federal Highway Administration, estimated vehicle miles traveled on U.S. roads for March fell 4.3 percent, or 11 billion miles, compared with March 2007. It was the first time that March travel on public roads fell since 1979 and the biggest yearly drop for any month in history.

In recent weeks, MasterCard has been reporting 4 to 5 percent declines in gasoline purchases. The Energy Department's Energy Information Administration has been reporting more modest declines.

"For 30 years, we've operated under the assumption that there are going to be more cars on the road," said David Portalatin, automotive analyst at NPD Group. "So we've developed drive-through windows, quick lube stations. We've done everything we can do service this on-the-go consumer. The biggest news is we've reached the point where we are starting to see some fundamental changes in consumer driving behaviors."

With consumers cutting back on their driving, many industry groups are worried. The Car Care Council, an association that promotes auto maintenance, has resorted to marketing the benefits of driving, arguing that even if gas hits $5, driving is still cheaper than flying.

"These soaring gas prices shouldn't sour our love affair with our vehicles," said Rich White, the council's executive director. He added that the changes in driving behavior may be temporary. "It's going to take a lot for Americans to give up that freedom of mobility that they cherish," he said.

The high oil prices, although beneficial for oil companies that have their own oil wells, are hurting many companies in the refining and marketing end of the business. Sam Darab, who fled Afghanistan after the Russian invasion, has been an Exxon dealer in Fairfax for 20 years, but he says low profit margins, competition from a big Safeway gas station and rising rents charged by Exxon Mobil are driving him out of business. Darab, a father of seven, plans to close his gas station Sunday.

"I work so hard," he said. "They have been so harsh with me."

Another Exxon dealer, Sohaila Rezazadeh, who was featured on the front page of The Washington Post last month, said yesterday that she can't advance the cash Exxon wants for deliveries and hasn't had any gas for four days. She said high rent and low profit margins had drained her accounts. She plans to close her station by the middle of this month.

Exxon Mobil had no comment on either of the dealers.

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