Gas Crunch: Our Insatiable Demand Fuels Price Spike

As gas prices have steadily increased, and now hover around $65/ barrel, Americans have revealed a surprising indifference.

According to a recent UC Davis study, when gas prices went up 20 percent in the five-year period between 1975-1980, U.S. gas consumption went down 6 percent in response. But in the past five years, as gas prices have once again spiked 20 percent, gas consumption has gone down a mere 1 percent.

Americans have apparently been doing little to change their driving and other fuel consumption habits in response to sharply rising gas prices.

However, there are other signs that this may be slowly starting to change. Sales of sport utility vehicles peaked in 2002, and have fallen since. And sales of small cars rose 5.3 percent last year.

But one of the most telling signs came with the release of the auto industry's first quarter sales data.

On Tuesday, Toyota reported that March was its best month in company history. Last month the Japanese auto giant sold 242,675 vehicles, an increase of 7.7 percent over March 2006.

The Toyota, Lexus and Scion brands have 23 models on the market this year that were also available last year. Of the 10 that have seen sales increases this year, 70 percent are small or midsize passenger cars. Of the 13 that have experienced a sales decline, 70 percent are full-size models, SUVs or other light trucks.

Toyota's record sales were contributed to by record hybrid sales.

The Prius hybrid gas-electric sedan posted all-time best-ever monthly sales for the second consecutive month with 19,156 units sold, an increase of 133.2 percent. So far this year, Prius sales are up 80 percent. And the Toyota and Lexus brands have cumulatively sold 61,635 hyrbrids this year, an increase of 68 percent over the same period last year. After eight years of production, Toyota and Lexus hybrids now have the distinction of selling more than a half-million vehicles.

But while Toyota likes to brag that the Camry has been the best-selling car in America for nine of the last ten years, the best-selling vehicle is neither a Camry nor a Toyota.

For the past 25 years, the Ford F-150 pickup has been the best-selling vehicle in America, selling about 550,000 units last year. And it has been the best selling pickup in America for the last 30 years.

But higher gas prices seem to be spelling tough times for Ford's flagship vehicle. Reflecting the hard times at Ford, sales of its F-Series trucks declined 15 percent last month, and overall sales of trucks and sport-utility vehicles were down 5.8 percent. Sales of all Ford vehicles fell 9 percent in March, the fifth consecutive month of declines. And Ford lost $12.75 billion last year, the worst loss in company history. Since 2001, Ford stock has plunged 40 percent, or more than $10.3 billion in value.

A big part of the problem is the decline of the Explorer. Not one SUV or van made the list of America's top 10 selling vehicles last year. Smaller, more fuel-efficient cars are suddenly in favor. Gas mileage has now become a decisive factor in new car purchases.

But oddly, full-size pickups continue to be the most popular vehicles in the U.S, accounting for three of the top four selling vehicles sold in 2006 (the Camry was #3). However, truck sales were down 6.7 percent last year, compared to 2005.

On the other hand, sales of hybrids have grown continually since 2000, when just 9500 of the fuel-efficient vehicles were sold. By last year, 254,545 new hybrid vehicles were registered in the United States, a 28 percent increase from 2005.

However, hybrids still account for just 1.5 percent of total U.S. auto sales. And according to J.D. Power, hybrid market share is expected to top out at just 3 percent of the U.S. automotive market by 2010. That won't help cut gas consumption nearly enough, and if demand remains this high, so will prices.

Gas prices have topped $3 a gallon in many parts of the country, and have reached a national average of $2.62 a gallon. A month ago, the average was $2.37. And yet, following five years of rising prices, American drivers are actually consuming more gas -- not less, as might be expected.

Last week, the Department of Energy reported that gasoline demand for transportation in the previous four weeks averaged 9.2 million barrels a day, or 1.6 percent higher than in the same period last year, when prices were slightly lower.

Experts say the increased consumption is the result of suburban sprawl, as well as a failure to plan, fund and build an adequate mass transportation infrastructure nationwide.

The trend toward increased consumption is troubling since the U.S. imports 60 percent of the oil it uses. President Bush says we're "addicted to oil," and foreign policy experts are concerned about how reliant the U.S. has become on hostile governments, such as Iran and Venezuela.

Conservative foreign policy hawks like former CIA director James Woolsey and Frank Gaffney, President Reagan's undersecretary of defense, are trying to do something about this reliance. The pair have joined Set America Free, a group that wants the government to spend $12 billion over four years on plug-in hybrids, alternative fuels and other measures to reduce foreign oil dependence.

Gaffney, who heads the Washington, D.C.-based Center for Security Policy, said Americans would embrace plug-in vehicles if they understood arguments from him and others who say gasoline contributes to oil-rich Middle Eastern governments that support terrorism.

"The more we are consuming oil that either comes from places that are bent on our destruction or helping those who are ... the more we are enabling those who are trying to kill us," says Gaffney.

President Bush may be listening. In his State of the Union speech last year, Bush pledged to replace more than 75 percent of our oil imports from the Middle East by 2025. However, that will hardly make a difference.

According to Energy Department statistics, imported oil and refined product from the Persian Gulf make up less than 20 percent of all imports, and 11 percent of total consumption. Our neighbors, Mexico and Canada, each provide 11 percent of U.S. oil imports.

But the president hasn't always put his money where his mouth is. Raising auto fuel-efficiency standards would go a long way toward reducing domestic consumption, but Bush has balked at every opportunity. Bush is a former oilman (as was his father) who's been a friend of the oil industry for many years.

Instead of significantly investing in American technology to make the nation more energy independent, Bush backed billions of dollars in tax subsidies granted to the energy industry in the summer of 2005.

Doing little to curb demand or encourage renewable energy, Bush signed an energy bill loaded with $14.5 billion in tax breaks and incentives for "Big Energy." The legislation did nothing to improve mileage for autos, trucks and SUVs. Opportunity missed.

And, unfortunately, the president hasn't yet called on Americans to start conserving, as Jimmy Carter once famously did.

Back in the late '70s, a combination of factors got Americans to switch to smaller cars and begin conserving gas. Since the inflation-adjusted price of gas was around $2.80 for over two years, and fuel shortages were causing long lines at the pumps, Americans were compelled to reduce gas consumption by 12 percent between 1978 and 1982. But Americans clearly aren't feeling the same sense of urgency today.

Although the price of crude oil has increased 160 percent since September 2003, when it was under $25/barrel, Americans are driving more than ever. According to federal statistics, today's cars average 12,190 miles on the road annually, up 24 percent from 1980. So while Americans gripe about gas prices, we've done little to change our behaviors and limit the demand on a very tight supply.

However, while the president talks about ethanol, biodiesel, ultra-low sulfur diesel, and other such alternative fuels, the markets are ahead of him and have taken matters into their own hands.

Companies producing environmentally friendly technologies are attracting more and more investment.

The US venture capital invested in North American companies producing green technology rose to more than $2.4 billion in 2006, more than double that invested in 2005, and more than triple from 2004, according to Clean Edge, a research and consulting firm.

As the president likes to say, the markets will take care of themselves and can solve all sorts of problems. We can only hope.

-- Sean is a freelance writer based in Los Angeles.

Copyright © 2007 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.