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Tuesday, January 18, 2011

The Fuel Economy: How might it impact you?

An article from The Detroit News suggests that steadily rising gas prices are hampering the sale of trucks, just as the major automakers are touting their wares at the Detroit Auto Show. (Click here to see the story for yourself.)

It’s natural to think about the impact of gas prices on vehicles. But it might also be time to think about what it might mean on everything else, too.

Implications: Here’s the good news… we’ve been through this before, and recently. A spike in gas prices in 2007 served to accelerate our entry into the Great Recession, because it hit many households as a shock to pay between four and five dollars for a gallon of fuel.

Next time, I don’t think it will be a shock. Consumers will react as if they have seen this before. (Am I the only one who thinks that the new reasonable floor for gas prices is $3 per gallon or slightly higher?)

That said, if fuel prices go too high, the increase will impact consumer behavior. Either they will try to cut down the amount they drive, or the increase in money spent on gas will have to be off-set with a decrease in other purchasing. Stores that deliver (furniture, appliances) might be more attractive to a household that has purchased a fuel-efficient commuter car, instead of a more gas-thirsty truck. People will likely return to a more multi-tasking frame of mind, hoping to scratch more needs of their shopping list with a single trip. Perhaps home entertainment will enjoy yet another phase of growth (home theatre, video games, alcohol, entertainment cooking, etc.)

As the cost of running a household changes, consumers’ needs and priorities will change, too. Those who best anticipate well will be the earliest to effectively respond.

Mike Anderson

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