Rising gas prices might rain on the car buying decisions of those with
short memories

By Kevin M

It’s almost hard to conceive that only a couple of years ago we were struggling to come to grips with the relentless rise in the cost of gasoline, as prices rose from the nearly constant level of a dollar and change a gallon, to over $4 in a space of just a few short years.

$5 a gallon was looking inevitable, and maybe the new standard. SUVs and other large vehicles had become un-salable and were plunging in value.

In the intervening two years we’ve had a mortgage meltdown, a wave of bank failures, a presidential election and a killer recession—it’s no wonder the still relatively recent gas price spike is barely a shadowy memory.

But as much as we may have forgotten that crisis for newer ones, it’s left its mark on our finances. Though gas prices have fallen back from their peak, they’re still at least twice as high as they were before the spike began. And if we’re completely honest, they’re not all that far off the peak any more either. $2.75 to $3 a gallon only looks good because we were paying $4+ a couple of years earlier.

So should we put fuel economy aside as we celebrate an apparent recovery? Are “high” ($4+) gas prices a thing of the past? Is the world now safe for your Escalade?

Why gas prices might resume rising

When ever something isn’t in a state of crisis, it’s easy to forget how ugly it can get and how quickly it can get there. When it comes to gas prices, we should all know better by now.

I’m not a strict disciple of the Peak Oil crowd, but even a skeptic has to admit that their contentions are often nicely supported by the facts. As benign as oil prices seem to be at the moment, the potential for a resumption of the price increases experienced for most of the last decade is all around:

1. An improving economy—it was only the decline in the economy that finally reversed oil prices; the potential is real that an improving economy will cause a resumption of price increases,

2. Worldwide growth in demand–developing countries are now where the greatest growth in oil consumption is occurring, and there are a lot more people there than in North America, Japan and Europe,

3. Major shifts in production—the easy oil land fields are the ones maturing and giving out, while new production is largely coming from hostile environments off shore (increasing way off shore), Siberia and the Artic Ocean. Not only is oil from these sources more costly to produce, it’s often more expensive to ship as well, and that ultimately means higher gasoline prices.

How this should impact our car buying decisions

No matter what you read or see, don’t buy into the cheap-gas-forever myth!

Since 1973 the world has experienced several severe reductions in oil production and even more periods of spectacularly rising prices, enough that no matter what the current price of a gallon of gas may be, when buying a car it’s best to assume the worst.

Even if gas is only 89 cents a gallon, when buying a car you need to ask if the vehicle you’re considering would make sense if fuel prices were to rise to $4, $5 or even $10 a gallon. To dismiss this possibility is to argue against reality itself.

And here’s a related issue we don’t much like to think about: should gas prices go that high, you may also be out of a job.

Oil has a multiplier effect; for better or worse, the entire global economy, including and especially the U

.S. economy, are intimately linked with the price and supply of oil. There’s an inverse relationship between the price of oil and the economy–when the price of oil goes up, the economy goes down–so it isn’t only higher gasoline prices we’re facing when oil rises.

If you make your car buying decision based on the assumption of cheap-gas-forever—because it supports your desired outcome or for what ever other reason—you’ll be setting yourself up to face the double whammy of higher gas prices AND the inability to sell your high priced, gas guzzling vehicle into an economy that no longer desires or can afford such luxuries.

Fuel economy—it matters regardless of where the price of gasoline may be.

( Photo courtesy of Rob! )