Gas costs forcing drivers to cut back

The Boston Globe reports:

Gasoline prices have risen so high and stayed high for so long, that Americans are finally doing what once seemed unthinkable: driving less.

Inveterate drivers are carpooling, combining errands to eliminate trips, trying mass transit, and even walking. As a result, gasoline consumption, which grew steadily in recent years as prices passed $2, $2.50, and $3 a gallon, has flattened and even declined, according to the US Energy Department.

Average daily gasoline consumption in the United States has decreased in each of the past four weeks from a year ago, according to recent data. In the past six months, average daily consumption slipped two-tenths of a percent from a year earlier, after growing 2.5 percent in the previous year.

In the Northeast, gasoline demand has dropped as much as 3 percent, after growing 1 to 2 percent annually in recent years, said Joe Petrowski, chief executive of Gulf Oil LP, a Newton wholesaler and distributor that supplies about 10 percent of the region's gas stations.

Among the signs that drivers are cutting back from last year: They're buying nearly 2 gallons less per card transaction at Gulf-supplied stations, said Petrowski.

"We're seeing smaller transactions and less fill-ups," he said. "People have become parsimonious. . . . A lot don't have other choices."

Take Lisa Towle, for example. She lives in Dunstable, where, she says, "we don't have any sidewalks and any stores nearby," and she commutes 25 miles each way to her job in North Andover. It costs her $40 to $50 to fill up her 1998 Volvo station wagon.

Towle, 44, now limits herself to one fill-up a week. She puts off buying more milk until she needs a bigger shopping trip. She used to drop her 13-year-old daughter off at basketball practice, make the 15-minute drive back home, then return to pick her up at the end of the 90-minute session. Now, she waits at the school.

Several years ago, her husband, Richard, restored a 1972 Porsche, keeping it off the road in winter. But now he is driving the Porsche because it gets 30 miles per gallon, 10 better than his van.

"Gas prices are an obsession with our family," Lisa Towle said. "If I have to fill up more than once a week, it has to come from somewhere else. More pasta and less meat."

The growth of outer suburbs like Dunstable is among the reasons gasoline consumption has responded so slowly to rising prices, said Christopher Knittel, an economics professor at the University of California at Davis. Longer commuting distances and fewer alternatives to driving make it difficult for consumers to find short-term substitutes, such as walking or mass transit, he said.

Higher incomes, which make it easier to absorb higher prices, have also supported gasoline consumption. Per capita disposable income in the United States has risen 18 percent in the last decade, adjusted for inflation, according to the US Commerce Department.

In a recently published paper, Knittel found that these societal changes have helped make consumers six times less sensitive to price increases than during the oil shocks of the 1970s and '80s. Thirty years ago, a 20 percent rise in gas prices would drive down consumption by 6 percent. That same increase today would cut consumption by 1 percent.

To make a real dent in consumption, prices must stay high long enough to prompt people to make big adjustments, such as moving closer to work or buying a fuel-efficient car, Knittel said.

"If a price spike is believed to be temporary, people won't make these type of changes," Knittel said. "It's the sustained price levels that are convincing consumers to make long-run decisions that reduce demand."

Since crude oil began its run to $100 a barrel, average gasoline prices have soared from less than $1.50 a gallon in January 2003 to $3.12 on Friday, according to the American Automobile Association. Still, gasoline demand grew steadily through much of this period, sometimes falling when prices spiked, such as after Hurricane Katrina, but then rebounding.

But with prices lingering near or above $3 a gallon and with economists expecting them to stay there, consumers are changing behavior, analysts said. Demand appears to have plateaued, with consumption holding flat or slipping over the past several months, compared to the previous year.

"People don't see gas prices going back to $2 a gallon," said Juan Pablo Fuentes, energy economist at Moody's Economy.com in West Chester, Pa. "They're making long-term decisions, like switching from big cars to smaller cars."

Sales of compact cars rose 10 percent in the last two years, while combined sales of large cars and sport utility vehicles fell 7 percent, according to Edmunds.com, an automotive consumer website. At Expressway Motors in Dorchester, a Toyota dealer, owner Robert Boch said sales of subcompact cars have doubled to about 20 percent of total sales over the past year.