Paying the Price for Rising Fuel Costs

www.washingtonpost.com By Warren Brown Washington Post Staff Writer Friday, February 28, 2003; 12:54 PM

The threat of war in the Middle East is boosting gasoline prices in the United States. So is political instability in oil-producing Venezuela.

An unusually harsh winter in the Mid-Atlantic and Northeast isn't helping. Some analysts in the oil and auto industries say pump prices could rise as high as $2.50 a gallon for self-serve regular unleaded gasoline.

Nationally, today's average pump price for self-serve regular unleaded is $1.67 a gallon, a few fractions of a cent higher than it was Thursday, according to the American Automobile Association's "Daily Fuel Gauge Report."

But $1.67 is 54 cents higher than the per gallon average a year ago, the AAA says. District of Columbia consumers are paying an average $1.75 for regular unleaded gasoline, compared with an average pump price of $1.15 a gallon a year ago.

Prices are lower in Maryland and Virginia. But consumers in those places still are paying more money for a gallon of gasoline today than they did last year. For example, Maryland residents in the Washington metropolitan area are spending an average $1.70 per gallon of self-serve regular unleaded, compared with $1.15 a year ago.

Virginians are having a better time. For example, consumers in Richmond are paying an average $1.58 a gallon for self-serve regular unleaded, compared with $1.04 a gallon last year.

Media reports indicate that car shoppers are edgy over the gasoline price increases. That suggests that the nation's car manufacturers might be biting their nails, too.

They're not.

That doesn't mean the car companies are sanguine. All of them literally have war plans. But none of them seems close to pushing the panic button.

"The issue isn't how high gasoline prices go. It's how long they stay high," said Michael Morrissey, public policy spokesman for General Motors Corp.

"Consumers have gotten used to cyclical changes in gasoline prices. A family of four is not likely to go out today and buy a subcompact car just because gasoline prices are high," Morrissey said. "Most consumers don't buy cars on a whim. They make it a part of long-term family financial planning. That planning is affected by high gasoline prices only if those prices stay high," he said.

Auto manufacturers don't act on a whim, either, said George Pippas, chief sales and marketing forecaster for Ford Motor Co.

"Product planning is done many years in advance of demographic changes or other [factors], such as fluctuations in gasoline prices," said Pippas. A case in point, he said, are the new gasoline-electric hybrid vehicles that use fuel more economically than conventional cars.

Ford in mid-2004 will introduce a gasoline-electric version of its compact Ford Escape SUV. The 2003, four-wheel-drive version of that model, equipped with an automatic transmission, averages 23 miles per gallon in highway driving. The Escape Hybrid will get up to 40 miles per gallon, according to Ford officials.

"But we didn't start working on the Escape Hybrid because of the current spike in gasoline prices. We began developing that one three or so years ago," Pippas said.

"You can't just respond to a crisis. You have to be committed to providing more fuel-efficient vehicles because you believe that those are what the market will be demanding over the next decade or two," Pippas said.

At the moment, the U.S. market is awfully confusing. There is much ranting and raving against sport-utility vehicles. Yet, SUVs and other light trucks constitute 50.6 percent of current new-vehicle sales while car companies are having a hard time giving away cars that are more fuel efficient.

Honda Motor Co. and Toyota Motor Corp. are beating their breasts in self-praise because they were the first to market gas-electric hybrids-the Civic Hybrid and two-seat Insight for Honda and the Prius sedan for Toyota. Yet, both of those self-avowed environmentally friendly companies are raking in the cash by selling SUVs such as the full-size Toyota Sequoia, the Honda Pilot and the Acura MDX.

And look at GM. It grabbed lots of attention in January at the North American International Auto Show in Detroit by announcing that it will offer gas-electric hybrids across most of its vehicle lines between now and 2007. Yet, it also shocked environmental senses by bringing forth a conceptual super car-the 16-cylinder, 1,000-horsepower Cadillac 16.

Now, GM officials are suggesting that the Cadillac 16 was just an idea that will remain an idea. But they still are preparing a phalanx of new pickup trucks and SUVs to do battle with the Japan-based companies that are introducing new full-size pickup trucks and truck-based SUVs, such as the proposed Toyota Harrier SUV and the ready-for-market Nissan Titan pickup truck.

"The years in which truck sales far outpace demand for cars eventually will come to an end," said Pippas. "But I don't think that's going to happen over the next 10 years, and it certainly is not likely to happen because of current increases in gasoline prices," he said.

It will happen because baby boomers, currently the biggest buyers of SUVs, are getting older, Pippas said.

"Think about it," he said. "Can you see yourself climbing up into an SUV or pickup truck at 65? I can't. I want to get into something lower to the ground. So do a lot of people. That's why car-based SUVs are all the rage," he said.