Panic at the pump

The soaring price for crude oil and gasoline is certainly getting a rise out people. According to an ABC Action News report, almost two-thirds of drivers think higher gas prices will create financial problems for them.

Conversely, you have folks like Allan Pulsipher, executive director of LSU’s Center for Energy Studies, who stated in a recent Associated Press story that “automobiles are such an integral part of the modern consumer’s life that gasoline prices don’t determine their behavior.”

Love/hate relationship
Despite this, it appears that some folks don’t agree with Mr. Pulsipher. Consider some of the comments that I found posted on a regional newswire.

• “I love my truck, but am considering selling it for small economical foreign car that gets over 30 miles-per-gallon.”
• “Since gas has been rising, our way of life has been changing. Short vacations, not running the air conditioner in the car, adding gas additive.”
• “My husband and I have six children and two cars. I find that the gas budget is rivaling our weekly food budget.”
• “As a business owner (retail specialty) I see a huge lack of sales and casual traffic. Summer is especially slow, but this is on the verge of being crippling.”

If these folks are to be believed, higher gas prices have become a real problem for some people and it is affecting their behavior.

What about carwash operators? Professional Car-Care Online™ reported that the Alfords, wash owners in Louisiana, believe higher gas prices have caused a noticeable decline in business and the need to increase carwash prices due to rising operating expenses like chemicals where crude oil is used as a feed stock. Certainly, there are other operators that are feeling the same type of heat.

How big is the impact?
During 2004, the price for a barrel of sweet crude oil rose from $35 to $55. According the Federal Reserve, this increase knocked growth by three-quarters of 1 percent and rocked consumer confidence.

If you drove 12,000 miles-per-year at an average of 20 mpg, a $1.00 price increase in gasoline would add $600 to your annual fuel bill.

For a household with an income of $100,000, the price increase in gasoline would equal 1.5 percent of that household’s retail expenditures. At $42,000, the increase would equal 3.8 percent.

What can we do?
When gas prices reach the point where domestic demand actually falls and then remains at lower levels, the price will come down. Right now, the demand for gasoline continues to grow unabated.

Carwash operators will also have to adjust. Some self-service and exterior operators may feel the heat more than most since they cater to markets that are less robust than the higher income full-service markets. But, full-service is not immune either.

If necessary, raise prices to cover large increases in operating expenses like chemicals. Otherwise, resist the temptation to lower your price.

Once pricing power is given up, it becomes very difficult and relatively expensive to get back. A self-service operator with an in-bay could consider things like adding an express detail program to increase sales or using a different price format like unlimited time for wand-bays.

Instead of converting to exterior-only, full-service operators could consider things like:

• Adding an express exterior lane;
• Converting to a flexible service platform;
• Taking measures to reduce unnecessary waste; and
• Cutting back on heated drying and hot water washing.

Even if you don’t drive very much, it appears that most of us are going to have to make adjustments to compensate for the increasing cost of crude oil and gasoline.