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Panic at the Pump ... and in Congress

High Gas Prices Enrage Consumers, Terrify Politicians

By Joe Benton
ConsumerAffairs.com

May 1, 2006

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U.S. consumers are fed up with rising gasoline prices and looking for someone to blame. Words like price gouging are filling the air and politicians -- Democrats and Republicans alike -- are on the verge of panic out of fear that voters will blame them.

The harsh truth is that springtime gasoline this year costs 70 cents a gallon more than it did last April. Oil traders insist the increase has more to do with market speculation than a fundamental shift in supply and demand.

Whatever the cause, the big oil companies are doing nicely, thanks. Energy producers are just starting to report their earnings for the first quarter of 2006 and the numbers only go one way -- up.

Exxon Mobil's profits are up 14%, Chevron's jumped 49 percent and Valero Energy Corporation reported a gigantic increase of 60 percent. "We had the highest first quarter earnings in the company's history, and the outlook for the rest of the year is even better," gushed Bill Klesse, Valero's Chief Executive Officer.

While the earnings reports are certain to bring smiles to the faces of oil company shareholders, they're igniting renewed charges of price gouging and profiteering. The hue and cry for political retribution will increase throughout Capitol Hill. Washington will brace for more investigations and lectures.

Congress and the President are both promising probes and hearings. Some politicians are talking about rebate checks for families and others are calling for a lower federal gasoline tax. President Bush has suggest everything from changes in fuel economy standards for cars to a more generous tax break for hybrids.

Bush warned big oil that his administration would not tolerate "manipulation" of gasoline prices. He also ordered a temporary halt to filling the Strategic Petroleum Reserve to relieve pressure on crude oil prices and scheduled a White House meeting with auto executives next month..

As all of the rhetoric resonates through the marble hallways in Washington and as dueling talk-show denizens struggle to keep their arguments and their hairpieces straight, consumers are left with the reality that the federal government has limited ability to push prices down, at least in the short term.

Throwing Fuel on the Fire

Politicians are eager to feed the anger against oil companies in an effort to deflect the ire from themselves.

Said one Democratic leader in Washington, "This is the fault of leadership: the leadership of the oil companies and the fault of an administration that comes from the oil patch and is afraid to confront their old friends when it comes to these rising prices at the gas tank."

The Republicans face a difficult task trying to convince consumers that the gas price run-up is a result of anything that powerless Democrats have or have not done, particularly in the face of the surging oil profit reports. No one has yet figured out how to pin it on Bill Clinton.

Since 1990, oil and gas interests have contributed $140.9 million to GOP federal candidates and $46.7 million to Democrats, according to the Center for Responsive Politics in Washington. In the last election cycle, 84 percent of oil interest political contributions flowed to Republicans and 16 percent to Democrats, according to the public-interest group.

In return, Congress and the administration have paid little more than lip service to energy conservation steps. And as for closing many of the tax loopholes the energy industry enjoys? That hasn't even gotten lip service, it's been completely ignored.

Realistically, an "excess profit" tax, a term that's often bandied about, means almost nothing. What's excessive and how is it defined? Lobbyists would dilute any attempt to make such a law effective and the courts might well find it unconstitutional.

However, that doesn't mean Congress should get a free ride for rolling over and doing nothing to increase fuel economy standards. Government's job is to balance the competing demands of business and consumers.

When the system gets too far out of balance -- as it is now -- corporations can't really be blamed for maximizing their profits. That's their job, after all. Congress' job is to be sure that companies don't ride roughshod over taxpayers.

What To Do

So what is a consumer to do?

If politics and rhetoric could fill a gas tank the answer would be easy. But cars don't run on hot air, not yet anyway.

And in reality, just as the federal government can't do much in the short term, there are not many ways a consumer can slash the gas bill, other than to stop driving.

There are, though, lots of little steps that, when gas is $3 a gallon or more, can add up to real savings. Here are a few:

• Pay attention to your tires. For every pound that your tires are under-inflated, you lose up to 2 percent in gas mileage. Inside the driver's side door of your car is a sticker that lists the proper tire inflation for your car.

• Keep the engine running properly. A dirty air filter can cut mileage. Clean or replace the filter every 5,000 to 7,000 miles. Dirty spark plugs can decrease fuel economy by as much as 30 percent.

• Keep your windows rolled up on the highway. Any car gets better mileage at highway speeds by having the windows up even with the air conditioner on. Open windows cut mileage as much as 10 percent.

• Buy gas when it's cool. Gas is sold by volume and, since gases expand when it's hot, the best time to buy gas is the coolest time of the day, which is usually early in the morning.

• Clean house. Haul only the stuff you really need in your car. Extra weight burns more gasoline. Get rid of the unnecessary junk.

• Drive moderately. Peeling away from one stoplight, then slamming on the brakes at the next one is hard on your car, and burns gas unnecessarily. Accelerate smoothly and coast up to red lights. This may annoy the guy behind you, but that's his problem.

And Another Thing ...

OK, so checking your tire pressure might not be enough to make a big difference. What are some steps we consumers can take to save money and, in the process, conserve energy and lessen damage to the environment?

Here's our short list:

• Ditch the Hummer. Congress didn't make you buy that Dodge Durango, did it? Using a 5,000-pound vehicle to transport a 110-pound woman and a loaf of Whole Foods sourdough doesn't make a lot of sense. And no, SUVs are not safer than sedans.

• Think 4 cylinders. The most economical car is a simple, stick-shift, 4-cylinder sedan, like the Toyota Corolla, Nissan Sentra or VW Golf. You probably don't need a Prius, which adds lots of cost for not all that much in the way of fuel savings.

• Move closer to work. Like deer trying to figure out where the woods went, Americans continue moving farther and farther out, seeking the frontier. Guess what? It's gone. Moving to the exurbs gets you a longer commute but doesn't guarantee the American Dream. Driving farther raises your gas bill, adds wear and tear to your car and stress to your life.

What Kind of Car?

During the first three months of the year, consumers bought vehicles with big and powerful engines. About 25 percent of all new vehicles sold in the United States were equipped with eight cylinders.

That may all be about to change.

With the sudden return of $3-a-gallon gas, consumers are facing $75 dollar fill ups as fuel prices soar to their highest point of the year with no signs of retreating.

Automakers and dealers are increasingly aware of consumer anxiety over fuel economy and the U.S. auto market is showing some signs of reacting to higher gas prices.

Sales of traditional truck-based SUVs like the Ford Explorer are down and cross-over vehicles that achieve better gasoline mileage are rising.

With it looking like 2006 may be a real life remake of the gas crises of the late 1970s, Detroit is worried, and rightly so. U.S. automakers saw record sales declines from 1978 to 1981 when gas prices nearly doubled. Sales dropped 40% and the Big Three suffered record losses.

GM, Ford and the former Chrysler Corp. had made most of their profits from large and midsize cars, powered by V6 and V8 engines. But as gasoline prices rose, many consumers switched to smaller, more fuel-efficient vehicles from Japan and Germany.

Fast forward to 2006 where GM and Ford derive an estimated 60% of their pretax earnings from SUV sales. As pump prices rise, GM is rolling out its new lineup of full-size SUVs this year, which the automaker describes as the most fuel-efficient models in their segment.

The sky is not yet falling over Detroit but it may be starting to crack.

While many consumers are concluding that the money they save in gasoline and on tax credits from driving a hybrid don't justify the roughly $3,000 premium they face at the dealership, the Toyota Prius and Honda Civic hybrids are top sellers nevertheless.

The Prius sells on average in 8 days and the Civic in 12 days, while SUVs languish on dealer lots. Both are real hybrids that deliver real fuel economy.

Having built a solid image as the leaders in fuel-efficient vehicles, Honda and Toyota continue to lead most automotive sales. Toyota is the world’s most profitable automaker and sale are up 12 percent this year.

Honda, Japan’s third ranked automaker, is predicting a seventh straight year of record profits.

April, May and June will be a test of U.S. consumer car buying trends. As gas prices continue to rise or perhaps just settle in at $3 per gallon, the trend is almost certain to turn away from big engines and SUVs and back to small Asian products.

If you're thinking of buying a more fuel-efficient car, be sure to do the math. A hybrid may be right for you, but it may not be. A small, four-cylinder car with a stick shift is almost as fuel efficient and a lot cheaper to buy.

Don't Panic

For families on the edge, the higher gas prices may be a real crisis, presenting the unpleasant choice of whether to eat or fill the gas tank. For most of us, it's an inconvenience. Fortunately, for everyone, gas prices aren't likely to stay this high for long.

Gas prices always spike in the spring. Barring another disaster along the Gulf Coast or expanded conflict in the Middle East, prices should moderate over the next few months. The current unpleasantness won't be so bad if it causes all of us to think a little more critically about our transportation choices.

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