Will you buy that SUV if gas hits $4?

Pump prices are up 15% or more this year, and there's speculation that they will rise again in 2011. That will hit consumer pocketbooks, auto sales and the economy.

By Charley Blaine Dec 27, 2010 11:26PM

Gas prices © moodboard/CorbisHere's a question to ponder, especially if you're thinking about buying a new car next year.

 

If the price of gasoline hits $4 a gallon or more, do you really want to buy that big sport-utility vehicle?

 

One can easily bet that the top brass at Ford Motor (F), General Motors (GM), Chrysler, Toyota Motor (TM), Honda Motor (HMC) and Nissan (NSANY) are all thinking about how you'll answer the question, too. That's a big reason they're working on building and selling electric cars.

Right now, the average price of gasoline is a touch above $3 a gallon, a level not seen since October 2008. Gasoline is up 15.3%, according to AAA's Daily Fuel Gauge Report, and 88% from the end of 2008.

Crude oil topped $90 a barrel last week and ended Monday at $91. That's up 14.7% for the year and 104% from the end of 2008.

The consensus is that crude oil will continue to rise in 2011, probably above $100 a barrel, with pump prices rising to $3.80 to $3.90. Maybe even $4. Ford Motor

 

Analyst Peter Beutel sees prices rising 50 cents to 70 cents a gallon by May.

 

"There is nothing to stop prices from advancing, and we may see them rise until they wreck the recovery," he wrote in an e-mail. 

 

John Hofmeister, the former president of Shell Oil, suggested on Platt's Energy Week television that the retail price of gasoline will hit $5 a gallon by 2012. Others think that may be early.

What's not clear is whether a 34% increase in gasoline next year will change spending habits.

Since incomes aren't showing similar gains, the answer is probably yes.

So far, the jumps for crude oil and gasoline have not hurt the automaker stocks. Ford shares are up 37% since the end of September. Toyota, Honda and Nissan are up between 5% and 10%. GM is up about 5%. But the group has been largely flat for the past few weeks.

But wait. The vulnerabilities are there because much of the improved performances of all the automakers came from big vehicles. Toyota Motor

Sales of Ford's F-series pickups were up 26% through November. Chevy Silverado sales are up 16%. And Toyota Tundra sales are up 17%.

It's like the good old days -- before 2007 and 2008, when fuel prices shot up -- are back again.

There is, of course, a difference. This year, the economy is growing, albeit modesty. In 2007 and 2008, the economy was falling apart.

How much of consumers' budgets are taken up by gas prices varies. In states including Montana, Louisiana and Mississippi, Texas, Oklahoma and Arkansas, 10% of disposable income goes to filling gas tanks, according to a new study by PortiaGroup. It's less than 6% in New York, Illinois and Massachusetts.

Montanans spend more than 12% of household income on fuel. New Yorkers spend just 4.7%.

PortiaGroup's study uses data from the Oil Price Information Service, the company that collects the data for AAA's Fuel Gauge report.

The common explanation for rising gas prices is growing global demand. Add to that the huge dollars pouring into futures trading for gasoline. The speculation cuts two ways: Some traders are simply betting on great demand. Others are using oil to hedge against expected inflation.

There are winners from the oil run-up: oil stocks. The NYSE Arca Oil Index ($XOI.X) is up 8.7% this month and 15% for the quarter. The Philadelphia Oil Service Sector Index ($OSX) is up 6.4% for the month and 21.5% for the quarter.

 

Refiner and retailer Valero (VLO) is up 18% this month and 31% for the fourth quarter. Exxon Mobil (XOM) has risen 5% this month and 18.2% for the quarter. Chevron (CVX) is up 11.3% in December and 11.2% for the quarter.

14Comments
Dec 28, 2010 10:55AM
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I agree with condonate....the only way we will stop our dependence on fossil fuels and middle east oil is by pain. The Kuwait oil minister made a statement last week that the global economy can handle $100 per barrel oil....that tells me that OPEC is going to do every thing they can to get oil prices back up. Too bad Obama is playing into their hands with punishing the oil companies drilling in the gulf of Mexico and not encouraging us to produce our own oil until we can move to newer fuel sources.....even if we start now it will take many years to move off fossil fuels. Taxing people to death to get us to make changes is not the answer.
Dec 28, 2010 7:49PM
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$4.00 a gal. will change things just like it did before.   Lets just hope we get some people in Washington who gets IT, sooner than later.   
Dec 28, 2010 4:02PM
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People have no choice but to buy gas to get to work. Further more the cost of oil is factored into everything we buy.  

Most cars would get better gas mileage if they lowered the axle ratios like they did in the 70's but people are not interested in mileage, the want a vehicle that will get to 60-80 as fast as possible.

Just some thoughts.

Dec 29, 2010 9:21AM
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Four bucks a gallon - wait until we have to pay for government mandated "alternatives".  Let's start with the Chevy Volt.  $40,000 for a $15,000 car, plus the taxpayers have to subsidize rich yuppies who want to feel good about themselves with another $7500 tax credit.  $25,000 buys a whole lot of $4 gas.

 

Of course, if the government didn't mandate ethanol, we'd have cheaper gas that didn't pollute the air as much and does NOTHING (as even that great scientist Al Gore now admits) to reduce CO2 or air pollution.

 

And don't forget the cost of wind and solar energy.  Not only do they cost at least as much as coal- or gas-fired electricity, but we need conventional sources to back them up when the wind doesn't blow and the sun doesn't shine.

 

Dec 30, 2010 10:32AM
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What I want to know is where the math comes from to determine gas prices.

 

Oil was at $150 a barrel and gas was $4 a gallon.

 

Oil is at $91 a barrel and gas is $3.19

 

Oil hits $92 a barrel and gas is $3.29

 

According to the way gas prices have moved up with slight increases in oil if Oil hits $150 a barrel again we will be paying $9 a gallon.  Heck there have been weeks where oil went up less than a dollar and gas went up over .15 a gallon

Dec 28, 2010 2:16PM
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I'm over six and a half feet tall.  I have an incredibly painful back condition.  I drive a large Honda SUV because it has enough room and I don't cause myself extra pain getting in and out of it.  It gets 20mpg.

If I could fit easily in a tiny car or hybrid, I would buy one in a heartbeat.  But I can't.  So, raise the gas prices all you want, I will keep paying.  I consider it a tall man's tax.

If you're of average height, in good health, and drive a giant SUV when you could just as easily fit yourself, your stuff, and your family into a small car, then I don't want to hear one word of complaint about gas prices from you.  Not one word.
Dec 30, 2010 10:28AM
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Yamanatic youre an idiot if you really do own a smart car.  Is your life worth soo little you would risk it driving that death trap to save a little cash on gas?  And you really arent saving much on gas at all.  The Ford Fiesta gets 40 highway, the Chevy Cruze Eco will get 40 on the highway.  And both cars have a cabin that will actually allow your vehicle to take a hit and not kill the driver.  If you are hit in a smart car there is no room for give.  2 inches in on the front, rear, or side and the driver is getting hit by the vehicle.

 

My life is worth enough that I WILL NEVER be dumb enough to get in a smart car.  Youre actually safer riding with a drunk driver than riding in a smart car.

Dec 31, 2010 7:04PM
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In answer to the question in the story----No, I would not buy a big SUV if gas hit $4.  I wouldn't even own one when ga**** $3.  I own a small SUV--Honda CRV.  I'd rather drive a hybrid CRV, but they don't make one.  I don't want another brand---I like Honda.  I'd get the 55 mpg $23k Prius, but no AWD available.  I want AWD in MN. 
Dec 28, 2010 12:55PM
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I'm scheduled to fly to Ecuador to check out the property possibilities in a region where I won't need to travel but a minimal distance per year.

But I digress.  For all you bumpkins who whine and pontificate about the latest pending global catastrophes and  the other shoes waiting to drop, go get a beer somewhere, or a better job.  Stop being the over thinking doomy gloomy, YOU are not a "PLAYER", you are not in the GAME, nor will you ever be.  You have no power to effect anything out there in the Geo-Political universe.  Take care of your own little planet, and leave the galactic change to those who can effect the change it will require to get to "Star Trek".

Dec 28, 2010 12:42AM
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Peak oil and a system that runs on heat engines will bring the economy to its knees. The future of transportation is the bicycle.
Dec 30, 2010 10:25AM
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Ekonoman the Volt over 5 years will cost the same as a Chevy Malibu, Toyota Camry, or Honda Accord.  Anything costing more than those cars and you will save money.

 

The price of a fully loaded Camry runs $26,000.  The Volt after the subsidy is about $33,500.  If you think in 5 years you dont go through $7,500 worth of gas youre crazy. 

Dec 28, 2010 5:41PM
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I have no choice but to pay four bucks a gallon because it isn't feasible to sell my 2004 Silverado with 16,000 miles to buy anything smaller.  The difference in the price would buy many gallons of gas.  Besides, counting the extra taxes and insurance on a new truck that wouldn't be able to haul what I need would buy even more of that expensive gas.
Dec 28, 2010 3:27PM
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Vanguard01, try a $mart car; I have one, and a friend who is 6'5" told me the same thing. I suggested he try mine on for size. He has one now and swears by it, not at it. His commute is 35 miles one way, and drives nothing but!

 

P.S. My other car is a motorcycle, so to all the naysayers, please spare me the details :-)

Dec 28, 2010 10:38AM
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Cheap fossil flues stifle the development of clean, renewable energy.  I hope gas does go to 5 dollars or more per gallon; unfortunately it always takes a crisis to get something done.
 
Instead of sitting around waiting for the rapture, we should take action now, BEFORE it really becomes a problem for our children.

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