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THE CHEAP FUEL EFFECT: BEYOND THE COST AT THE PUMP

Good morning dear readers and welcome back to kenbaxter.com!  I am Ken Baxter of Las Vegas and today is Wednesday, February 25th, 2015.  I hope you are having a great week so far!  If you’ve been keeping up with my blog, you’ll know that I am the proud owner of a Tesla Model S, arguably the best of all the electric vehicles on the market today.  Premium design and luxury finishes are not all this car offers; an added perk of owning a 100% electric car is never waiting in line at a gas station to fill up!  Whether it is going to appointments and meetings, traveling out of town on business, or heading out to California for a weekend trip, I spend a good amount of time driving yet never need to pay to refuel!  Did you ever stop to think about how much you drive or how often you have to pay to fill up your gas tank?

For those of us that commute back and forth to work or spend lots of time shuffling kids to and from school and numerous other activities, it seems like every other day requires a trip to the gas station.  Spending $40 to $50 or more per tank of fuel is not easy on the wallet when you’re filling up three times a week!  One of the biggest budget reprieves has been the decline in gas prices all over America over the last few months.  Even if you’re not a heavy vehicle user, you may have noticed that fuel prices are not as high as they once were in your neck of the woods. In Las Vegas, we’ve seen prices dip under $2 per gallon!  Right now, we’re around the $2.50 mark; still much lower than the peak of $3.96 back in April 2012.  While most of us are gladly taking advantage, pocketing our extra dollars for other expenses or finally taking that road trip we’ve been daydreaming about, we have to wonder, is cheap gas refueling America or does it cost more than what we pay at the pump?

Low-priced fuel can affect the American economy in more ways than one.  On the positive side, it can help raise the value of a suburban home due to the lowered cost of commuting.  Those buyers who may have otherwise chosen to stay near their jobs, typically in a centrally located city, would now be able to afford the extra thirty minute daily commute to the suburbs and spend more on their white picket fence.  Cheaper gas also allows people to take more trips to the grocery store and the mall, and for more consumer dollars to be spent elsewhere in the economy.

But what about the cost to related industries?  Manufacturers, like U.S. Steel, have laid off workers in droves due to weakened demand for oil in 2015.  Their recent layoff notice reads: “The company has suddenly lost a great deal of business because of the recent downturn in the oil industry.  What appeared just a few short weeks ago as being a productive year, [with new hires in December and extra turns going on], has most abruptly turned sour.”

“Green” vehicle manufacturers, like Tesla, Ford, Chevy, and many others who’ve jumped into the electric and hybrid market are feeling the pinch too.  Mike Rabkin, owner of From Car to Finish, an expert new-vehicle negotiating service, weighs in.  “I can safely say that based on what I’ve seen over the last 21 years, consumers go back to buying what they want when gas prices go down, (i.e. larger, less fuel efficient vehicles), and dealers end up having to give better deals on gas/electric hybrids,” Rabkin explains. “This is because the hybrids inherently come standard with expensive technology that allows them to get better mileage. If consumers don’t care as much about mileage due to lower gas prices, they don’t want to pay the price premium for that technology. This is especially true when the hybrids don’t meet their vehicle needs in areas other than mileage, which is frequently the case.”

While gas guzzling SUV and truck sales may go up in the short term, our fuel prices won’t stay this low forever.  The general trend of prices, not just on gasoline but on all goods and services, is almost always up in the long term.  The dip in cost that we’re seeing right now, and maybe for the next year or two, won’t last forever and we know prices will eventually bounce back, based on historical data.  The guy who buys the eight-passenger SUV for his family of four will want to trade that in for a hybrid once prices start dinging his wallet once again.  Tesla CEO, Elon Musk, is willing to take on that consumer challenge though.  In response to criticism of his company’s ability to stay in the game based on recent trends, he remarked, “Falling gas prices are a major concern for the company’s plans to release an affordable car by 2017, but it just means we will have to work harder at improving the cost of electric vehicles.”

Even with falling fuel prices, oil producers in the U.S. are laughing all the way to the bank…for now.  With a massive boom in production due to innovative new shale drilling technologies, American producers are now rivaling giants in the industry like Saudi Arabia, Venezuela, and Russia.  Once leaders in world oil export, these oil-dependent economies racked with government intervention and cartel manipulation are now taking a major economic hit due to our newly found oil independence.  Bloomberg researchers note that America supplied 89% of its own energy last year, where just 10 years ago we were only furnishing between 65-70%, relying on OPEC and other countries to provide the rest.  Once crude oil prices fall too low, however, even our American producers in places like North Dakota and Texas will need to cap production and cut back on drilling rigs to stay afloat or their wells won’t turn a profit.

With pros and cons at each end of the spectrum, as consumers, we know that it sure feels good to fill up the car with just one crisp twenty dollar bill!  What are your thoughts about cheaper gas?  Are you grateful for the reprieve or worried prices will bounce back even higher?  Do you worry about other repercussions for our economy?  Would you consider purchasing the new Ford Focus Electric if gas prices stay as low as they have been this year or would you rather have that new V-8 GMC Yukon Denali?  I’d love to hear what you think!  You can read all about this topic and more on my website – www.KenBaxter.com or stop by my Facebook and Twitter pages with your questions and opinions.  I’ll look forward to hearing from you and have a great rest of your week!

 

 

 

With very best wishes,

Ken “Rocket Man” Baxter

www.kenbaxter.com

 

 

Photo: Ken Baxter in his Tesla Model S All-Electric Vehicle

Created by: Ken Baxter

Blog Written by:  Jennifer Acevedo as told by Ken Baxter

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