Recently exploring what would happen if gas prices reached $10 a gallon, an MSN Money columnist predicted thousands of truckers going out of business, airplanes sitting idle, and scores of restaurants and stores shutting down. On the rise would be car-pooling, hybrid vehicles, inline skates, telecommuting, rooftop vegetable gardens, home cooking, recycling, and solar and nuclear power.
According to Todd Hale, senior vice president of Consumer Shopping & Insights, Nielsen Consumer Panel Services, at $10 a gallon, the average family's gas bill would leap from 16 percent of its retail spending to about 40 percent. Consumer spending on eating out, apparel, electronics, and vacations would fall sharply. Businesses and farmers would be squeezed by rising costs of transportation, petrochemical fertilizers and plastics. Food prices alone could jump by a third or more.
Although Goldman Sachs last month predicted gas prices may rise to as much as $5 a gallon if the U.S. economy and dollar doesn't improve, prices in the U.S. are nowhere near $10. But consumers are already clearly altering their habits as gas prices soar:
- According to the Transportation Department, Americans drove 11 billion fewer miles in March than they did in March 2007, a drop of 4.3 percent. It is the first time since 1979 that traffic has dropped from one March to the next, and the month-on-month percentage decline is the largest since 1942;
- A recent survey by the AAA found a rare year-on-year decline of one percent in the number of people planning to travel this summer;
- With national gas prices hitting $3.94 nationally a gallon over the Memorial Day weekend, fuel demand in the U.S. has fallen sharply and is headed for its first annual decline in 17 years;
- A Nielsen survey completed in December - when regular gas averaged $3.06 - was already finding that consumers were looking to battle high gas prices by combining shopping trips and errands (70 percent), eating out less (41 percent) and staying home more often (39 percent).
"The psychology has changed," Sara Johnson, an economist at Global Insight, told The New York Times. "People have recognized that prices are not going down and are adapting to higher energy costs. It's a capitulation."
Discussion Questions: Do you think America's love affair with the road has reached a capitulation point with rising gas prices? If so, how will this impact consumer spending? Regardless, what opportunities might retailers be missing that have resulted from the hike in gas prices?