Whether it be local dump truck drivers, long-haul owner/operators or soccer moms – everyone’s been griping about the cost of fuel lately. And for good reason, it’s costing all of us more money – at the pumps and now even in the stores. But scratch beneath the surface and I think there’s even more reason for concern when taking a look at the big picture and the larger impact the cost of fuel is having on our economy.
Looking at the issue from the perspective of a consumer, there are two causes for concern. For one, the cost of fuel is heightening transportation costs for the goods we consume and is already driving up store-shelf prices. Signs are popping up in store windows justifying cost increases and attributing them to increased transportation costs. It was only a matter of time before this started happening and now it has begun.
Secondly, and perhaps more importantly, a higher percentage of our disposable income is being diverted towards the purchase of gasoline, which means at the end of the month, there’s less left over for non-essential purchases, such as dinners out, a night at the movies or household items. In North America, it’s this type of spending that drives our economy. With gas prices surging by 50% or more, we are effectively removing millions – maybe even billions – of dollars of consumer spending and directing it towards the cost of gas. That money is literally going up in smoke. I think this is very disconcerting and often overlooked when considering the true impact of rising fuel prices.
I haven’t been able to dig up a Canadian equivalent, but consider this: According to an Oil Price Information Service study, the percentage of income the average American now spends on gas has doubled since 2002 (from 1.9% to 3.8%). That report was released late last year – it has likely increased even more in early 2008.
Removing 1.9% of consumer spending from the economy is going to have a major impact. Less consumer spending = less demand for trucking services. It also means less business for store-owners, restaurants and other entertainment providers. Maybe I’m over-simplifying the issue – I’m not an economist. In fact, some economists argue that directing a higher percentage of income on gas doesn’t necessarily mean a reduction in consumer spending. But I question their logic. It costs me about $20 more today than it did two years ago to fuel up my reasonably fuel-efficient Corolla every time I pull into the gas station. That’s $20 that doesn’t go to Cineplex, or Boston Pizza or Canadian Tire – or a personal savings account for that matter.
I reside in a middle-class neighbourhood (I also fear the once seemingly all-encompassing middle-class is evaporating and leaving in its place a widening gulf between the ‘haves’ and the ‘have-nots’ – but that’s a subject for another blog). My personal observations suggest that people are reeling in unnecessary spending (driving less is rarely an option, at least for those of us in the ’burbs). The alternative is to tap into credit sources and home equity and that could prove to be even more disastrous long-term.
If the cost of gas doesn’t soon subside, I predict we’ll begin to see store closures and more job losses in the months ahead. So what’s the solution? That’s the multi-billion dollar question. I don’t think there’s an immediate fix. But in the short-term, I think we need to find environmentally-sensitive ways to tap into North America’s vast supply of oil. That should be enough to tide us over until we make further gains towards developing vehicles which can be operated electrically or via other sources of power.
It’s a lot to ask of auto manufacturers – to develop cost-competitive vehicles which don’t require fossil fuels to operate. However, I look to our industry for inspiration. In 2002, 2007 and again in 2010, truck engine manufacturers have had seemingly impossible challenges placed before them by the EPA. Each time, they have risen to the occasion. Hopefully auto makers can be equally successful in their pursuit of a solution that will lessen our dependence on fossil fuels for personal transportation.
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