Lower Gas Prices and the Presidential Election
The precipitous fall in gas prices the third quarter of 2008 is giving drivers a break from $100.00 fillups but is being viewed with guarded optimism as only a fleeting deferment. Gas prices fell approximately 30% since summer and may drop to $2.00 per gallon, some analysts cautiously predict .
The actions that commuters took to save money and conserve fuel this summer by carpooling, using public transit, and buying more fuel efficient cars are predicted to continue despite the drop in gas prices. Once people change their habits of daily living, they do not easily revert back to old patterns. Demand for gasoline has dropped by over four percent in just the last month; jet fuel demand has dropped by over 9 percent.
OPEC Balancing Act
This drop in demand has OPEC members considering cutting back production to cause prices to rise, but they are aware that too much of a cutback will worsen the economic crisis, a big mistake for them in the long run. OPEC oil prices at $147.27 on July 11 have now dropped by more than fifty percent to $66 per barrel.
How to Get Along with Less Gasoline
- Carpool, use public transit, bicycle, walk
- Drive at or just under the speed limit. Remove unnecessary weight from your vehicle. Cut down on wind resistance by removing the ski rack or other roof equipment.
- Coast up to a stop sign. Accelerate slowly from a stop. Give the car ahead plenty of room in slow traffic to minimize the use of braking.
- Telecommute or ask to switch to flex-time to avoid commuter traffic.
- Own and drive an alternative fuel vehicle.
Was the Price of Gas Artificially High to Begin With?
Some economists feel that this explanation is a bit too neat and clean; it cannot all boil down to supply and demand; drivers cutting back may not be the entire reason. Recently a consultant on petroleum issues testified before a Senate subcommittee on gasoline pricing during which he could not explain the high prices seen this summer by applying market fundamentals, and could not rule out the possibility that decisions are now being made for political reasons to adjust gas prices down to the market normal to coincide with the election.
Drivers are Adapting
Regardless of the causes of the sudden drop in gas prices, or the peak prices we experienced this summer, drivers are continuing to make adjustments to their commute habits by using public transit, carpooling, buying more fuel efficient vehicles, and hypermiling, the savings from which will probably not be immediately fed back into the economy, but will be sequestered away in preparation for tough times.
Regardless of the price of gas, there are important reasons to drive less and conserve fuel.
- With billions of fewer miles driven than last year, motorists noted a decrease in auto accidents and fatalities this year.
- Every gallon less of gas burned emits 20 pounds less carbon dioxide into the atmosphere.
- Less reliance on Middle East oil.
- Slower depletion of non-replenishable natural resources.
Greenspan Says 'Oops"
Former Federal Reserve Chairman Alan Greenspan recently conceded that he was fundamentally wrong for believing that deregulated banks would act responsibly in their lending practices for the sake of their shareholders. As we brace for the "once in a century economic crisis", we are reassured that we can have some effect on the economy by acting on our belief that conserving fuel and other natural resources, and curbing wasteful habits can bring about positive change.
On the other hand, smaller banks, savings and loans and the financial arms of various automakers, such as Chrysler Credit Corporation or GMAC (the so-called "captives"), are much more restricted. Captives are hurt not only by default on loans, but by other losses sustained by their parent companies. Local banks and savings and loans, which do a volume business in auto loans, are likely to be hurt by defaults and other results of job losses during the economic downturn.
All of them, including the "big boys," have to face the new credit restrictions brought on by government reforms. The end result is that there will be loan money for cars available, but not in the bulk buyers are used to. The result, according the National Automobile Dealers Association, may be the closing of as many as seven hundred car dealerships across the nation.
So much for the sellers and lenders. What about Joe Six-Pack, or as he is now renamed, Joe the Plumber?
Curt Beaudouin is vice president of Moody's Investors Service, a financial analysis and research company. Mr. Beaudouin suggests that for years buyers have been, with the blessing of lenders, buying more car than they could afford. He expects that to change. Buyers will now be more careful making sure they can fit new car financing into their budgets.
Those who are "upside down" in their cars, meaning they owe more than the value of the car, will be stuck driving what they have until they catch up. The same for those with bad credit. Others will be shopping for used cars, maybe even older models, to qualify for credit. Leasing will remain an option, but not to the extent it has been. Chrysler Credit has stopped all lease lending, and other lenders are cutting back. A substantial number of potential new car buyers will be hanging on to their current vehicles longer, especially since trade-in values have also plummeted.
Exact numbers are difficult to predict, but the rapid downsizing of the U.S. auto market is expected to last at least several months and maybe a few years. The short version is that automakers, autoworkers and auto dealers are likely to suffer, as are those with poor credit or who have made excessive use of their credit. In the short term, the only winners will be those with excellent credit or cash in hand.
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