May 24, 2008
American Car Drivers Cut Back Distance Traveled
For the last few years in some quarters I've read claims that American drivers will drive themselves to financial ruin before they respond to higher gasoline prices and cut back on driving. I'm more of the school that people will restructure their lives (change jobs, move to be closer to jobs, do less recreational driving, etc) out of necessity. My view is that Americans can cut their gasoline usage in half once the need arises (and it will arise as Peak Oil bites harder). Well, with oil north of $100 per barrel and price shocks biting hard American drivers traveled 4.3% fewer miles in March 2008 than in March 2007.
WASHINGTON -- Americans drove less in March 2008, continuing a trend that began last November, according to estimates released today from the Federal Highway Administration.
“That Americans are driving less underscores the challenges facing the Highway Trust Fund and its reliance on the federal gasoline excise tax,” said Acting Federal Highway Administrator Jim Ray.
The FHWA’s “Traffic Volume Trends” report, produced monthly since 1942, shows that estimated vehicle miles traveled (VMT) on all U.S. public roads for March 2008 fell 4.3 percent as compared with March 2007 travel. This is the first time estimated March travel on public roads fell since 1979. At 11 billion miles less in March 2008 than in the previous March, this is the sharpest yearly drop for any month in FHWA history.
This is just the beginning. Note this comparison ends in March. Prices have gone much higher since then and still have higher to go this summer. So the cutbacks on driving will get even deeper. People will find lots of ways to cut back that take longer to do. They will move and choose jobs in order to cut back on commuter miles. Some will switch to buses and trains. Others will buy scooters and bicycles and give up cars for many uses.
Last time Americans cut back on driving was in 1979.
THE last time this happened Jimmy Carter was US president. In March, US driving fell an astonishing 4.3 per cent on a year earlier. It was first time driving has fallen in the month since 1979.
US driving began to taper off in November, according to Doug Hecox of the Federal Highway Administration, but at first it was thought the decline could be seasonal, because of bad weather. Then came March, and the largest year-over-year driving drop in the agency's recorded history, going back to 1942.
"We are beginning to see what we think is a very defensible trend beginning," Mr Hecox said.
People now get that the high gasoline prices aren't just a temporary spike. They've been hit hard enough for long enough that the psychology has shifted more toward fear. They don't want their road hogs pulling them down into poverty.
Cost of transportation fuels as a percentage of income is the really interesting number to watch. The portion of income going to transportation fuels is still below that in 1981. But that reflects a large growth in income and buying power that has taken place since 1981. In inflation-adjusted terms we are now paying more per gallon on gasoline than we were back then.
Americans spend 3.7 percent of their disposable income on transportation fuels. At its lowest point, that share was 1.9 percent in 1998, and at its highest, it reached 4.5 percent in 1981, said Ms. Johnson of Global Insight.
Also, Americans pay less to drive a mile today than they did in 1980, once the impact of inflation and gains in fuel efficiency are taken into account, said Lee Schipper, a visiting scholar at the transportation center of the University of California, Berkeley.
Mr. Schipper estimates that the cost of gasoline for each mile traveled will be about 15 cents this year. That is nearly three times the low of 5.6 cents a mile reached in 1998, when fuel efficiency peaked and prices were at their lowest. But it is still cheaper than the record paid in 1980 of 17.1 cents a mile, adjusted for inflation.
A shift toward smaller and more fuel efficient cars will lower the cost per mile traveled. Plus, people will find more ways to reduce the number of miles traveled. How fast all that happens determines how far up prices can go. The more demand destruction at any one price point the less the need for a still higher price point.
If we hit $200 per barrel then gasoline will cost $6 to $7 per gallon in the United States. It already costs that and more in Europe now. So the Europeans will be paying $10 per gallon when Americans are paying $6 per gallon.
If oil hits $200 a barrel, which is the upper end of Goldman Sach's prediction for prices over the next six months to two years, the gasoline picture changes quite dramatically. At $200 a barrel, crude alone would cost $4.76 a gallon. Add on the costs of refining and distributing as well as taxes, and pump prices could rise to a range of $6 to $7 a gallon.
SUV and truck sales are tanking.
According to sales tracker Autodata, full-size pickup sales were down 22% in April compared to a year earlier, while and large SUV sales plunged 32% over the same period.
Meanwhile subcompact sales are booming.
Autodata Corp. reports that sales of large SUVs fell 28 percent in the first quarter this year at a time when subcompact sales rose 32 percent.
Even if some new oil projects can boost world oil production by a few more million barrels of oil per day in the next few years that oil is headed for Asia. Rising Asian demand combined with rising demand in oil producer countries means less oil available for Western industrialized countries. Next time you buy a car get the most fuel efficient one you can stand to drive. We are years away from the point where the crisis eases and energy for transportation starts getting cheap again.
Update: The NIMBY (Not In My Back Yard) environmentalists have done an excellent job of blocking oil drilling off the US east and west coasts, the Alaskan National Wildlife Refuge, and other US lands. I thank them for preserving that oil for when we really need it (granted that was not their motivation). Because they tirelessly worked to preserve that oil for the future the shifting political winds caused by high gasoline prices will eventually unlock a substantial chunk of US oil for development.
Mounting concerns about global energy supply are fueling a drive by the oil industry and some U.S. lawmakers to end longstanding bans on domestic drilling put in place to protect environmentally sensitive areas.
In a report last week, the federal Bureau of Land Management stated that at current U.S. consumption levels there are four years worth of oil and 10 years worth of natural gas under federal lands. However, more than 90% of that energy was under lands either closed to development or open with significant environmental restrictions. The federal Minerals Management Service said an additional three years worth of oil and gas is in offshore areas where drilling isn't allowed.
It does not matter whether the bans get lifted this year. If $4 gasoline isn't enough to lift the drilling bans then surely $6, $7, or $8 gasoline will do the trick. I can't imagine that $10 per gallon gasoline will be necessary to make people tell their elected officials that they want the drilling rigs unleashed.
Today I advised my son to drive his old gas hog another year or so but to remove his collision insurance - it won't be worth repairing.
My reasoning is that his old and well worn vehicle will bring nothing if sold and more models with high fuel mileage will be available in 2009. Right now choice is still limited with the Prius and Civic Hybrid being the models in the 40mpg area. I also expect to see several diesel choices in 2009.
The idea that perverse Americans won't drive less or give up huge personal vehicles is not based upon real data. We have had a couple of fuel shortages and our markets responded. But fuel costs soon dropped again and people reverted to buying what they felt was best for them. Cost will not drop this time; the question is where it will stablize.
However there are problems with market response for major purchases. New vehicle buyers must believe fuel costs will not go down again. They are not convinced overnight. And as the resale price of gas hogs plummets it tempts those at the low income levels - often not wise shoppers anyway - to buy them. The resulting resistance makes fuel consumption fall slowly.
K ... you're right. My car is old but in good shape and pretty fuel efficient so I have no intention of trading it in until the PHEVs become available ... and even then I'll make the decision based on economics and return on investment (ROI). My truck is a diesel and I've been toying with the idea of making my own biodiesel to save a few bucks.
Perhaps now the auto manufacturers will push PHEVs out the door sooner. Before, it was just research on the side ...
The oil isn't "headed for asia". The oil will go to whomever wants to pay the most for it. Asians don't want to go into financial ruin either, and given their economic dependence on exports, they will suffer slackening demand as rising gas prices bite further into the discretionary income of the rest of the world.
The market is clearly responding now. People wonder what policies nations have to take to face the challenges, I say by far the main thing is to change the regulations to make alternatives possible to develop.. like expanding rail lines without endless environmental studies and lawsuits, allowing nuclear power plants, wind plants and so on. Then let inventors, manufacturers, customers, corporate buyers and so on figure it all out.
In the short run, I'm fascinated by the potential for carpooling. I don't understand why someone would switch jobs or homes in preference to carpooling (unless they wanted to anyway).
It's easy, it's fast, it has no capital cost - 9% of americans already do it. Modern telecom makes it easy to match people up - it used to be based on worksite communication, but no more.
It could reduce fuel consumption for an individual by 85% (4 people in a Prius), or for the nation by 25% (50% of US fuel consumption is light vehicles, and carpooling can be used for more than commuting) in a period of months, if we got serious.
Also, car-sharing (igocars, zipcar) could share scarce PHEV/EV's - the average car is only used 1 hour per day, so 5M PHEV/EV's could be used by 50M people.
China's percentage of the world economy keeps growing. As it does ours shrinks. The United States and Europe are not growing as fast as China.
Think about what that means. Their buying power is increasing faster than ours.
You tell me what I predict isn't going to happen. But here's the thing: It already is happening. China is sucking in more oil and we are using less:
BEIJING, May 13 (Xinhua) -- Crude oil imports rose 9.8 percent year-on-year in the first four months of this year to 59.77 million tons, the General Administration of Customs said on Tuesday.
But the cost surged to 40.3 billion U.S. dollars, up 80.8 percent, due to higher global crude prices.
With China's huge trade surplus they can afford to outbid us with our huge trade deficit.
I figure within 2 more dollars a gallon opposition to offshore drilling gets overwhelmed. $6 per gallon gasoline means offshore drilling. If $6 isn't enough then $8 is. We'll get there eventually.
BTW, down the street from me a Shell station is selling regular at $4.139 and diesel at $5.099. The lifestyle shift in SoCal is going to happen sooner.
I think telecommuting will become more and more popular with the high fuel prices.
I work from home 2 days a week and am just as productive while saving 40% of the gas.
Every day at work if I am at home or the office I telecommute all over the country. Using VPN to access customers networks and RDC to work on their servers.
Government better start a national broad band initiate before the tubes start getting clogged though ;)
Some people can telecommute. But for what fraction of the populace is that true? I don't have a good handle on it.
> I don't understand why someone would switch jobs or homes in preference to carpooling
That's an excellent and perplexing question. I tried to give you my answer here http://radio.weblogs.com/0103955/categories/stupidHumanProgramming/2008/05/25.html#a257 in Why Stressed Out of Control Americans Won't Carpool. I think the root is the need for perceived control on our lives and our cars are the source of that control. Any mass transit system must design to satisfy this need and carpools are the opposite of control.
Todd, that's a great idea. I have one objection, and a clarification.
My only objection is that self-driving cars will take a while to develop. We only have the beginnings of this technology now, and the bar for reliability and safety is much, much higher for a system over which you don't have control - look at how scared some people are of planes, even though they're much safer than cars. So, it's a great idea, but we can't wait for it. Any idea how much work is going into such things?
Now, let me clarify: I agree that carpooling is less convenient. I wouldn't put it in terms of perceived control - that seems a bit judgemental. In fact, carpooling would require adherence to other people's deadlines, and would be a bit slower due to the need for pickups and dropoffs, and deadlines which would have to fit several people. It would require paying attention to new deadlines, and would waste time for people. That's a real cost, and for most people, at the moment, it's greater than the benefit of not having to be at the wheel, and saving fuel.
Now, I consider that to not be a big cost, when compared to moving or finding a new job! That's how I framed my thoughts: I don't understand why anyone would move or find a new job, rather than carpool (unless they were really happy to change residences or jobs anyway). Even now, fuel costs aren't that high for many people - it seems to me that people aren't really seriously concerned about fuel costs if they haven't started looking into carpooling...
Todd, don't forget about carsharing. The cars aren't self-driving (yet), but it's growing quickly, and it's an effective way to spread the benefits of PHEV/EV's to many people quickly.
Take a look at www.zipcar.com.
Randall, I think the % is high (I bet at least 25%), but there are social barriers. Employees are afraid of feeling left out, and managers are afraid of losing control.
A big regulatory push (or a fuel emergency) could give it a big push forward. For instance, the Federal Government mandates that agencies offer it - see GSA regs.
Interesting post about car pooling.
I have a practical objection to car pooling: I do not work regular hours. I'm not alone on this. Car pooling only works for people who have regular conventional hours. But if I have to sometimes get to work at 6 AM to do a telecon with people on another continent (and I do) then car pooling doesn't work.
It is even harder for me to know when I'll leave work than when I'll arrive. Meetings come up and go over schedule. Problems come up that must get solved that day.
Mass transit suffers from similar problems to car pooling with time. The buses start at some hour and end at some hour. Well, what if you need to work late and the buses run less often or not at all when you finally want to leave?
Telecommuting works a lot better for me. I could stay home some days if management was willing. But I think we are going to have to wait for much more expensive gasoline before management becomes willing to grant more flexibility. Managers are going to need to see that they either allow telecommuting or lose excellent workers.
I see a bigger effect in fuel autarky programs. We've already had the mickey-mouse sideshow of the hydrogen economy, the dishonest rent-seeking of electric cars (where does the electricity come from bozo?) and more rent seeking from corn-ethanol people. It's an established goal that gets serious money year after year. The price of oil goes higher and we'll actually do something practical, like development of the tar sands, or biodiesel from the 'tubes in the desert' algae project. OPEC hopefully stays greedy enough to destroy it's members' economies utterly.
As for moving and finding jobs: Remember that people are already moving and finding new jobs for other reasons. When someone is looking for an apartment they'll shift their search radius to be closer to where they work. Or if they are going to get a new job they'll look harder closer to home. Or they'll just start watching for jobs closer to home.
The point is that people have lots of decisions they are already taking and now gasoline prices will weigh more heavily in making those decisions.
Almost a sixth of the American population move in a year:
In 2006, almost 50 million people, or 16.2% of Americans, had changed residences in the previous year.
There's a nice complementarity of carpooling and telecommuting: people who can't do one are good candidates for the other. For instance, cashiers and assembly line workers must stick to tight shift schedules, which is a nice setup for carpooling, while people who's work is variable, like your's, are typically knowledge workers.
I would note that carpooling can be flexible: you could have a pool that comes by at a set time, but which you use only an average of 3 times per week. Modern telecom gives much more flexibility: you might pool with one person, and move times as needed, or even pick and choose from several pools in the neighborhood dynamically - we need to use our imagination.
As for moving and finding jobs: I agree, the natural ad-hoc optimization that has always gone on will shift somewhat towards shorter commutes. OTOH, that can be very easily over-estimated: There's a wide distribution of movers, with some people moving often, and some people rarely; many moves are very short; many moves are for very specific reasons, like school or retirement, which constrains choices; housing costs vary dramatically between suburbs and cities, and fuel costs won't change that much; and finally, there are inexpensive substitutes, like more efficient cars, carpooling, telecommuting, and soon PHEV/EV's.
To expand on that: I see carpooling & telecommuting as effective, though inconvenient, short term substitutes for expensive commuting, and turnover of ICE vehicles to more efficient models and then to PHEV/EV's as longerterm substitutes. These seem much more cost-effective to me than, say, moving from the suburbs to city living.
"a few more million barrels of oil per day in the next few years that oil is headed for Asia. Rising Asian demand combined with rising demand in oil producer countries means less oil available for Western industrialized countries."
Please take your econ text to the beach this summer so you don't keep making these mistakes. jb is exactly right.
"According to sales tracker Autodata, full-size pickup sales were down 22% in April compared to a year earlier, while and large SUV sales plunged 32% over the same period."
As a long time SUV hater, I think this the silver lining in this gray cloud. I hope the oil price bubble doesn't burst until people are parking the things in bad neighborhoods and taking the plates home with themselves.
Aside from condescension what are you offering?
Chinese demand really is growing faster than US demand.
In 2003 China overtook Japan to be the world's second largest oil consumer. China now consumes 50 per cent more oil than Japan. Chinese consumption has risen by more than 7 per cent a year since 1990.
At this growth rate, China would equal America's current oil consumption by 2020 and double it by 2030.
About 1200 new cars are being added every day in Beijing alone. And yet only 3.3 in every 100 Chinese people own cars, compared with 77 in the United States. Chinese citizens consume one-third as much oil as Mexicans and one-twelfth as much as Americans. The country's thirst for oil is at its early stages, and India is close behind.
Facts trump your misunderstandings about economic theory:
April 21 (Bloomberg) -- Traffic jams in Beijing and humming air conditioners in Dubai are replacing U.S. highways and suburbs as the driver of global oil prices.
China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.
What I'm telling you is going to happen is already happening. I tell you facts. You respond with condescending vague assertions about economic theory.
"China, India, Russia and the Middle East"
I believe India's oil consumption is flat. I think it's China, Russia and the Middle East who's responsible for increasing consumption - basically China and the major oil exporters.
First, why would you expect Chinese oil to rise at "this growing rate" out to 2020 and 2030? That implies almost no other technologies to be developed that lessen the demand.
Second, it isn't as if there is "less oil available for Western developed countries." (You still assume no other oil discovered) but you make it sound as if the West is competing against China for oil where all that is happening is that consumers in all these nations buy it at a world price on the open market.
If there were actually less and less oil available in 2020 or 2030, then prices would continue to rise and the Chinese would obviously buy less, all things euqal. You assume that the Chinese ignore prices, and they don't.
I didn't provide exact time lines. Those time lines happened to show up in articles that provided other pieces of information germane to my argument. Of course a lot of technologies will get developed by 2030. But as an FDR advisor (Harry Hopkins) pointed out, we all eat in the short run.
If Chinese oil consumption grows at 7% in one year and then 7% in the next year the absolute amount of growth is greater in the second year. Chinese oil consumption has been doing that for almost 20 years. Their GDP growth rate has been even higher. They are still mostly not developed with far more people on farms and old industries than have joined the modernized sectors.
Right now rising Chinese demand is pushing up prices and those high prices are cutting US demand. There is no contradiction between:
you make it sound as if the West is competing against China for oil
where all that is happening is that consumers in all these nations buy it at a world price on the open market.
These statements say the same thing.
Going out more years: There will be less oil available and we'll be the post-peak period by 2020. So China's economic growth and large size will pit them against us for a shrinking pile of oil.
I do not assume no other oil discovered. I expect lots of oil discovery. But I also expect production at existing fields to decline more rapidly than new production comes on line in newer fields. The world pattern will repeat the pattern seen in the US, Britain, and dozens of other countries. The number of post-peak countries will keep getting longer while the number of pre-peak countries keeps getting shorter.
You have no idea how big the pile is in 2020 nor the demand for it since things change. So stop pretending that you do.
You say China's economic growth will "pit them against us" (their demand for oil stalled a couple of years ago as prices quickly rose, so it hasn't been a steady 7% rise). But we don't say that when American's buy gasoline at the stand for higher prices. Do you compete against your neighbor to go buy the gas? Maybe sneak off to the pump at midnight to out compete them? Do they look at you strangely when you do? "Hey Marge, there goes sly Randall, out at midnight to compete for gasoline."
What Randall is saying is averages, and compiled statistics. Of which are all correct, but they are not covering the entire picture. Basically this is the general picture. What we need to be doing is not conserving the oil but researching new forms of fuel, or we may lose or world around us. Fossil Fuels are dead microscopic plankton of which have been smashed over millions of years. The burning of them causes an over load of Co2 emission I.E. Global Warming. ANYONE who says Global Warming is a scam needs to check out the weather patterns down here in the South East... I will admit that Global warming does happen on its own, but not at this rate.
Cutting back on how much oil is needed will also protect the very sensitive balance of man vs. environment. We are at the extreme tipping edge and we must balance out our needs and our desires.