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4 upsides to higher gas prices

As the political debate on energy prices heats up, experts say there may be some hidden benefits to more exensive gas.

By MSN Money Partner Feb 24, 2012 4:51PM

This post comes from Quentin Fottrell at partner site SmartMoney.

 

When President Barack Obama tackled American anxiety over rising gas prices with a speech in Feb. 23 speech in Florida, there's one thing he didn't say: Pain at the pump can be good.

 

But as grousing about gas prices grows into a U.S. pastime, some experts say people lose sight of the benefits of rising costs. Consumers can even use the hikes to their advantage at car dealerships, when they shop and in their investment portfolios.

 

That's not to say there isn't reason to be upset. Gas prices, up more than 10% in the last year to a national average of $3.73 per gallon on Feb. 29, according to the AAA Fuel Gauge Report, continue to pummel U.S. consumer confidence. Drivers cut back on gas for the previous 48 weeks, according to a survey published Feb. 22 by MasterCard SpendingPulse. "Every 1% per gallon increase in gasoline prices costs consumers about $1.1 billion over the course of a year," says Chris Lafakis, an economist who specializes in energy for Moody's.

 

But here are four ways higher gas prices might be a blessing in disguise:

 

Get a deal on a large car

Higher gas prices are bad news for one major group: car salesman -- especially those with an inventory of big automobiles. As prices rise, deals for gas-guzzling SUVs, large sedans and trucks will increase, as demand for smaller cars rises, says Peter D'Arruda, the president of Capital Financial Advisory Group in Cary, N.C. "If you want to buy a bigger car, wait until the gas prices go up to $5 or $6 a gallon, he says. "But if you're going to get a small car, get one as soon as possible."

 

Rising gas prices create added incentives for car manufacturers like General Motors and Ford to keep their prices down, especially in the face of Japanese competition from Hyundai, Kia, Toyota and Honda. Alec Gutierrez, a senior market analyst at Kelley Blue Book, says GM and Ford would be unwise to raise prices in this climate.

 

In 2008 and 2011, when fuel prices last approached $4 per gallon, values of compact and hybrid cars increased by more than 20% in a matter of months, Gutierrez says. If gas prices continue to climb, he says, manufacturers will cut back on production for large trucks and SUVs. But he adds: "Consumers seeking a fuel-efficient vehicle should buy now."

 

Forget the mall, shop online

Don't bother trying to find a spot at the mall. Shipping costs may be going up, but many experts say consumers can still snag better deals online, use their time more efficiently by price-comparing and scour a much larger inventory than even the biggest big-box stores can carry. "And you don't have to deal with lines and bad salespeople," says Yung Trang, the president of TechBargains. Although some delivery companies such as UPS upped their shipping costs in recent months, Trang says prices are still as good, if not better, online. (Post continues below.)

There's another way around those shipping costs, too. D'Arruda joined Amazon Prime for a flat fee of $79 a year, which offers subscribers free two-day shipping and free streaming. Sites such as eBates and RetailMeNot have thousands of coupons and codes for shopping online, so there's no need to scan their barcodes at the cash register. "I have $3,000 worth of checks back using these sites in the last couple of years," D'Arruda says. "I never want my wife to find out about this because she's a real shopper."

 

Invest in oil and gas companies

Despite the oft-talked-about "pain at the pump" for consumers, the rise in energy prices shows that this is an export-led industry that continues to grow. Domestic crude oil production increased to 5.5 million barrels per day in 2010 from 5.1 million in 2007, according to the Department of Energy. Last month, the agency said production is expected to grow by an additional 20% over the next 10 years.

 

As SmartMoney reported last month, the Energy Select Sector SPDR (XLE), an exchange-traded fund, surged 19% in the fourth quarter of 2011, mostly due to the rise in oil prices, which will feed through to local gas stations.

 

Some investors are in for the long-haul: D'Arruda has a dividend reinvestment plan (DRIP) with ExxonMobil (XOM) that has enjoyed many years of dividend increases since his college days. DRIPs are offered by about 1,000 companies and closed-end funds; they allow existing shareholders to purchase stock directly from the company, bypassing the broker and their commissions. Many companies allow shareholders to purchase stock at discounts to market rates.

 

Plan a staycation

One sure way to avoid increasingly punitive fuel surcharges on trans-Atlantic flights: Stay home. Adam Weissenberg, the travel, hospitality and leisure sector leader for consultant Deloitte, says, "It will cause most folks to spend less and travel in the U.S. -- especially at state parks and beaches." But as fuel prices rise further, he sees businesses like restaurants offering more "gas cards" for discounts at gas stations to entice customers.

 

"Certainly, higher fuel prices will lead either to higher fares or more airline fees," says George Hobica from the fare-tracking site AirfareWatchdog. "We spent a lot of time getting on planes to go on vacation," D'Arruda says. "Here in North Carolina we have mountains on the left and beaches on the right, and D.C. is only five hours north."

 

For those who need to travel for work, price-sensitive travelers should skip airport car rentals, which can cost 20% to 30% more than the same services in nearby towns.

 

More on SmartMoney and MSN Money:

8Comments
Feb 25, 2012 2:58PM
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Why is it whenever prices go up someone with rose-colored glasses comes along to cheer us up with dollar signs in our investment portfolios?

We can't all afford a new gas-saving car, and many have no choice about driving to work or job interviews.  I'm sick of staycations - been doing that since the financial meltdown.  Seems like every time we cut back, prices go up while wages remain stagnant.  And, yup, we all have huge investment portfolios so we'll come out ahead, right?

Feb 26, 2012 1:38PM
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So shopping online, which you'd either do anyway or else have to and wait to get your item, and a staycation are "upsides"?  And you think that shipping prices will stay flat for those items you ordered online?  Ridiculous!
Feb 29, 2012 4:54PM
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This article just goes to show how far MSN will go to justify and cover for Nobama's ineptitude.

 

Feb 29, 2012 6:08PM
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Here is number 5 - the already insanely rich oil barons and sheiks can stuff their already

overflowing wealth portfolios. Heres to the 1% and their GOP servants. 

Mar 1, 2012 2:06PM
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I can see that whomever thought up this article had their head up,shall we say in a dark and smelly space, for the apparently the warmth and/or quiet. Oh yes let me be able to buy a big gas guzzling car at a huge discount ,which is still more than I can afford, that I can't afford to buy gas for at the increased prices for fuel in the first place not to mention at the present prices. As for shopping on-line,don't worry, they surely won't increase the amount they charge for shipping. Invest in oil and gas companies? They don't have enough of our money already? A stay-cation? Really? Who out there can afford to take time off work let alone go anywhere and still afford life's necessities. And the best one yet - Blame Obama for the OIL and Gas companies greed. They are the same people with their heads up there for the warmth and the quiet because we sure are getting the stink across the rest of the country. It's about time that the Government charges them for taking gas and oil we need and selling it overseas for even higher profits. Of course this is the same MSN that ran an article about Wall streeters feeling the crunch on $350,000 a year. All I can say to that is REALLY???
Feb 29, 2012 7:05PM
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Exactly how can we afford these expensive "saving" ways and still have the same paycheck numbers (or less) while prices for everything else skyrockets? Well my opinion is no matter what people say or do anymore we are pretty much headed for a depression. At least that is what i see.
Mar 7, 2012 2:51AM
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I rent cars all the time and find the best rates at the airport locations

Feb 29, 2012 7:43PM
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I must assUme that this is tongue in cheek humor. Not funny in the least.
Also, I hope this wasn't an attempt of MSN to smooth over the current failings of our Government in turning the economy around. If it is, it is more proof that Liberalism is a mental disorder.

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