Gas Price Pain – Media Hype and Consumer Illusion?

Gas PricesI just bought a new 2008 Chevy Silverado Crew Cab and have been taking some heat for it from friends and on this blog where I wrote about the purchase experience, how I got a great deal, and the experience of interfacing with dealerships.

The main themes: “How shortsighted”, “wouldn’t a smaller vehicle have worked?”, “You’ll regret it”, “gas prices will eat you alive”, etc. Even one “I thought you were smarter than that”.

Does anyone do the math on these sort of judgments? I did. Here is what I came up with.

Assumption: $3 per gallon was higher than we liked a year ago, but it didn’t generate the hysteria and behavior modification and purchase modification that $4/gal. seems to be creating, so I base my comparisons on $3/gal vs. $4/gal.

Case Study 1 – my driving habits
I drive about 1300 miles a month in the truck. It gets 15 mpg so far (same as the old one – 2001 Silverado).

That’s 86 gallons of gas per month that I purchase. At $4 vs. $3 per gallon, I’m paying an additional $86/mo. over last year to drive my truck. Nobody thought less of me a year ago. Now suddenly I’m a fool, according to some, for not taking measures to eliminate an additional $43/mo. cost of living.

Had I purchased a smaller car that gets 30 mpg, I’d be saving $43 per month. That’s not enough savings to forfeit the advantages of driving a truck.

My judgment: people who are trading in their 15mpg vehicles for economy cars probably spend way more than $43/mo on discretionary things, such as eating out. I don’t think people actually sit down and look at written budget numbers when determining where the best place to achieve savings would be. Instead, there seems to be an irrational emotional fleeing from low mpg vehicles to higher mpg vehicles, with no attention paid to where the break even point might be on the transition costs, or whether there are other, better ways to find find the savings.

Case Study 2 – Summer Vacation
I hear on the news and read that “people are staying home” this summer because gas prices are making travel too expensive. To watch the news, you’d think $4 has create a crisis. Really? Let’s do the math.

My family will be driving from Texas to Maine this summer, and back. It will be about a 20 day trip, through Wash DC and NYC also. It’s 2200 miles each way, 4400 total. Add in detours and side trips and call it 5,000 miles of driving.

At 20 mpg in our Honda Odyssey minivan, we will need to purchase 250 gallons of gas, which means our summer vacation this year will incur fuel costs of $250 more than the same trip would have cost last summer.

Sorry, but between the hotel stays, eating out, entertainment and attractions, etc., $250 is a drop in the bucket and is hardly an amount that would derail a family vacation. We could pack the tent and camp out a few nights instead of staying in the hotels and B&Bs, and we’d make up more than the excess fuel charge. We could stay in cheaper motels on the overnight driving legs of the trip. We can pack more sandwich material and eat out far less while on the road. There are multiple ways that the average family could offset the increased fuel costs of a trip and I don’t understand the news stories that claim there are vacationers canceling trips because of gas prices.

So, I think the media hype is getting to people. Get out a calculator and do the math before canceling your vacation or trading in your low mpg vehicle and base your decision on data and facts instead of emotion and media hype.

Steve

Posted by Steve
8 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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M1EK - 8 years ago

Faulty logic. The original $86 was the difference between $3 and $4 at 15 mpg; you can’t halve that and say that’s all you’d save from a 30mpg vehicle; you ALSO save half of the original $3/gallon baseline.

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Tim - 8 years ago

I think most people couldn’t afford the 15mpg vehicle in the first place. If you make them spend an extra $100/month on gas, that’s $100 they just don’t have. So for them downsizing to a smaller car makes a lot of sense. I think they’re suddenly waking up and questioning why they’re spending $200/month on gas when they could be spending $80. Also, for some reason it seems like a lot of the people who like trucks are also the sort of people who commute the longest distances. If you’re filling up a truck twice a week (like a lot of people I know), then $1/gallon is a massive difference.

My entire gas bill for the month is the same as the difference that $1 makes in your gas bill. Makes a lot more sense for me to pay $45 to rent a truck from Home Depot if I need one.

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Christina Ethridge - 8 years ago

Steve – I’m with you and I get your point. People can’t seem to get beyond the irrational emotional issue to the real numbers. People act like it’s a sin against humanity for you to spend +/-$100 more a month on gas, yet they sit there and spend $5/day on latte’s and $10/day on lunches and eating out (not realizing it all has an effect).

M1EK – While I get your point, Steve doesn’t have faulty logic, he flat out said he was only going to use the differences between last years price and this years price “… it didn’t generate the hysteria and behavior modification and purchase modification that $4/gal. seems to be creating, so I base my comparisons on $3/gal vs. $4/gal.” That’s Steve’s point. The difference from last year to this year is nominal and doesn’t make a difference to him – he’d rather cut his budget expenses somewhere else.

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Steve - 8 years ago

Hi M1EK: I get your point. Thanks for pointing out my math error.

At $4/gal and 86 miles per month, I’m spending $344/mo. on fuel. A 30 mpg vehicle would cost half that, saving me $172/mo, not the $43/mo. that I stated. I was looking at the incremental difference, as Christina pointed out, but which isn’t technically the right way to make the comparison.

Nevertheless, I can’t cram clients into a small car, at least not yet. And I still need a truck.

Ironically, our Honda Odyssey gets the same mpg as the truck, and people think we’re “smart” for choosing the Odyssey, which is a well regarded minivan.

I have in fact modified my driving somewhat, consolidating trips when possible, thinking of other errands or things needed when out and about, screening people more thoroughly before I drive off to show a house.
Steve

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Austin - 8 years ago

The point is why on earth would you buy something that gets 15 MPG? Why said you need a truck? Are you hauling heavy equipment? Unless you do there is no reason for you to have a cab crew truck.

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Teddy - 8 years ago

At what fuel price/gallon would you consider moving to a vehicle with higher fuel efficiency?

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Christina Ethridge - 8 years ago

Austin – you missed the point completely. Wait – maybe you proved it.

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arz - 8 years ago

Steve, maybe you are a little bit of too defensive in discussing this topic. Nonetheless, you raise some valid and good points. After all, you are a Texan and you have every bit of right to choice your own saddle and ride, so to speak. On the other hand, I really think that there are many points on the opposite opinion that are equally valid and noteworthy:

1- economic reasoning from gas pricing prospective:
15MPG vs. 30MPG is exactly 50% of cost efficiency. You said you drive about 1300mi per month. That’s actually pretty low for a realtor. I thought realtors generally put up like 20-25k miles on their cars since they will have to drive client around Austin a lot. But let’s just say you drive 1300mi/mo x 12 = 15600mi / 15mpg = 1040gal of fule per year. 1040gal x $4/gal = $4160. Say if you switch to a 25mpg sedan, you get 15600mi / 25mpg = 624gal x $4/gal = $2496. $4160 – $2496 = $1664 / 12 = $138.66/mo of saving. Not a lot, but still means you can use that savings to eat out a couple of times a month and so forth. Imagine if you drive a lot more, the savings can be quite significant.

2- economic reasoning of overall cost increase related to gas pricing: not just the gasoline at pump went up 25% over last year, everything else went up. Your hotel stay, your grocery shopping, your restaurant visit, pretty much anything in the current marketplace are going up. Some of the price increase is not fully related to oil price, but they all seem to cause average joes of America to worry because most Americans are already spend their income to the meximum level, AKA, they already maxed out before the price increase.

3- economic reasoning related to the resale value: to put it bluntly, you got a good deal, but you will still see your truck value decline sharply. It’s like you bought a 6 bedroom 3000 sq. ft. house and thinking you got a good deal but will realize that you will have a hard time getting rid of it down the road because American public are moving away from this MacMensions.

4- environmental reasoning: this is a simple one, you have a large carbon footprint than those who drive smaller cars. You contribution to the global warming is statistically insignificant but still every bit count.

5- practical reasoning: I really don’t think sitting in the back of a crew cab is that comfortable. I sit in my friend’s Tundra sometimes to lunch and I felt rather bumpy ride when we are on the road for more than 10 minutes. An crossover SUV or mini-van is much better choice in making your potential buyers comfortable.

At last, about the media hype. I personally find it interesting. Regardless of its truthfulness, it’s certainly creating a sea change on American consumer behaviors, which in the end, might be good after all.

Again, I don’t think you made a “bad” choice by any means. I just want you to see why others making choices differently and they are not “bad” or “misinformed” either.

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M1EK - 8 years ago

Check out the back seat of a Prius sometime – you could (and some probably are by now) carry passengers around to look at houses. I saw my first Prius cab in Austin last week as well.

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Steve - 8 years ago

Well, I can see that I ought to classify myself as a “late adopter” in the move to smaller more fuel efficient vehicles. I doubt I’m the only one who will grudgingly give up big vehicle preference though. I see a lot of big trucks and Suburbans commuting from Dripping to Austin.

The minivan is a must. Sylvia had all 8 seats filled as she drove our kids and their friends to Schliterbahn Saturday. The truck is a “must”, with a small ‘m’. I suppose I could work around the occasional hauling needs with some inconvenience. But it’s nice to have.

I’ll be driving to check a tenant move-out today. If the tenant leaves misc debris behind (as is common), it’s easy to toss in the back of the truck and haul it off instead of hiring someone to do it (which would cost more and use more gas). We also do enough rehab and remodeling on our rentals to make the truck valuable for acquiring materials.

As to where the breaking point (price per gallon) would be, I don’t know. There are a lot of other areas in which belt tightening could happen if it became a budget issue. Also, a lot of driving modification can happen with regard to short errands and shopping outings that can be consolidated.

Steve

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Tim - 8 years ago

Steve,

I dont get your point that having a truck is useful to carry your clients in comfort. By any standards — noise, ride quality, seats etc – a Toyota Camry Hybrid (for e.g.) will be better than any truck today, unless you are towing your client in an RV behind you.

Also, how many times a month do you have to dump trash from tenants moving out of your property? The last time I dumped trash from a house my tenants vacated, it costed me $25+gas+dump fee. So you are only saving $25 at most probably 4 times a year?

We can we start to make rational arguments?

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peter - 8 years ago

The main point is your selfish American way of thinking – regardless of the cost. You are driving a low mileage truck because it is “nice to have” and the extra “cost” as you calculate it, is something you can afford. The point is your way of thinking is why we consume so much more energy per person as an American than anyone else in the world – and with oil reserves likely to have hit their peak, oil will likely only get more expensive, not less. This means your calculations based on today’s $4 gas – flatlining that into the future – is flawed. What is gas prices go to $6-7 / gallon as it is in Europe? Then do your numbers work? What about the fact that we as a country have to spend Billions of dollars on our military and in foreign aid to support countries in the Middle East and places like Algeria and Venezuela to keep sending us the oil we crave. We go to war in Iraq to, in part., secure that the oil keeps pumping. So kids die. But at least you have your big McMansion, your hot tub, your oil sucking big ass car, and can keep shuttling clients around so you can take your monopoly 6% commission. Damn the rest of the world. If they can’t afford it, too bad for them. If those in the Middle East take your dollars and turn them into weapons they can use to knock us off our pedestal, so be it. Good luck in your myopic, selfish world. I would think if you have kids, you would care more to not straddle them with the consequences in the future of what makes you comfortable today.

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Steve - 8 years ago

Wow. Opened a can of worms on this one. Maybe I should stick to posting real estate stats.

Peter, thanks for your views. Now we’re straying into social/political issues which probably don’t belong on this blog.

Steve

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arz - 8 years ago

Peter, all human are selfish, not just Americans. So, please don’t bash on Steve for some honest statements he made. At least he’s trying to generate a discussion that will enlighten everyone.

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Nate - 8 years ago

OMG – whats with all the righteous folks crashing this very informative blog!!!
Steve i really enjoy your blog regardless of the truck you drive.

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Barry - 8 years ago

Drive what you want and don’t feel guilty about it. The market sets the price for gas and if you are willing to pay for your consumption level then so be it. Al Gore consumes more fuel on a private plane to a global warming speech then you will in years driving your pickup.

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Ellie - 8 years ago

You do have a good point. It is easy to panic. When I was growing up in the UK, I remember thinking one of the perks of moving to the US would be the price of gas. What I had not thought much about was that by living in the States, one gives up cheap train travel and public transportation and needs a car to really get around (if you live in the move rural areas).

Still, as you said, do the math and it is not so bad. Thanks for the optimistic turn on this idea.

Ellie

P.S. Thanks for dropping by my blog and commenting.

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Bob - 8 years ago

For RE agents, the vehicle is the office.

What is a shame is that there isn’t something that would fill the needs you have. Ford is even canceling the Ranger, which means there are basically no small trucks left. I suppose you could have looked at a 4 door Chevy Colorado or the smallish 4 door Nissan truck. But lets be honest, fully loaded they aren’t much cheaper, nor much more efficient, and not even much smaller, than a big 4 door F150. I think a lot of people would like the utility of 4 doors and a small truck bed, without the weight and large engine needed to tow heavy things. Something light a lighter more efficient SportTrac. The subaru baja is an option, but loaded up they can be more expensive than a larger truck that will do a lot more. Honestly, subaru engines don’t do that well for gas anyway. As often as not I use my truck for Home Depot trips to bring very bulky things home, that are not particularly heavy. Same with my ranch. It is not your fault that nobody is making a vehicle that would make the most sense for a big chunk of people, yourself included.

I think an interesting topic would be whether gas prices will effect real estate values in a meaningful way. I work downtown, so my suburban home near 183 and Oak Knoll makes biking & mass transit a real option (the Pavilion Park & Ride). Perhaps homes near the Leander rail route will be desirable. If MoPac ever became a commuter rail, then the area near Duval & MoPac might boom (already its close to shopping with the Domain). If gas creeped even higher, than anything past the Y in Oak Hill seems utterly unsustainable. But homes along South First or along Slaughter might have a workable mass transit and community shopping that a family could live with one car. Lots of new subdivisions wouldn’t make sense if gas were $10/gal, but some older ones might. Pflugerville still has a downtown, for example, it would just be a matter of working nearby.

So Steve, are you hearing from clients anything about the price of gas effecting the purchase of residential property?

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Michael @ The Stage Coach - 8 years ago

“I dont get your point that having a truck is useful to carry your clients in comfort. By any standards — noise, ride quality, seats etc…”
Realtors – please correct me if I am wrong, but as I see it, the reason I see so many Realtors driving large vehicles is they try to consolidate clients into one vehicle for ease of travel. And not only do they have to Fit inside the vehicle, but they have to be able to get in and out of the vehicle. If Steve tried to cram my family of four into a Prius or Camry to drive around and look for a home for a few hours, I would pass. So we’d drive 2x cars (consuming more fuel) or we’d find another Realtor.

And kudos for clarifying the Must vs the must. Not many people are that honest.

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ABC News - 8 years ago

What do gas prices look like in your hometown? Snap a photo of the prices at your local gas station and tell us how rising costs are affecting your daily commute, summer travel plans and lifestyle. We want to see the prices our viewers are experiencing across the country. Your photos and comments may be used on “World News With Charles Gibson.” Get your videos or pictures in asap and they may be used on ABC News!

http://ugv.abcnews.go.com/player.aspx?id=4199016&tb=1

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