Every winter, analysts publish gloom-and-doom warnings about summer gas prices, but most of the time, those predictions turn out to be extreme. However, according to a report on CNN, things are worse than usual this year, and prices at the pumps soon could hit $5 a gallon.
Most of us remember the summer of 2008, when gas prices soared to an average of $4.11 per gallon. That was around the time that Wall Street banks were crashing, just before Detroit executives boarded private jets to D.C. to beg congress and then-president Bush for help.
That was the beginning of a perfect storm that swamped the auto industry -- especially Detroit. Banks tightened credit restrictions, making it difficult for consumers to purchase cars. Many of those consumers lost their jobs in the ensuing Great Recession, which made securing credit even harder for them. Customers who were fortunate enough to remain employed and make the credit cut often opted for more fuel-efficient rides, particularly those manufactured by Asian automakers.
The U.S. economy is on sturdier footing these days, but rising gas prices could deal a blow to Detroit, which is still playing catch-up to some foreign rivals.
What's different this year?
The biggest cause for concern in 2012 is the price of gas, which was $3.39 as of yesterday. That's up 30 cents from last year, and it's the highest January price on record.
That price isn't likely to drop. Even though the U.S. now exports more gasoline than it uses, the economic recovery has spurred heavier demand for gas, and with heavier demand comes higher prices.
Furthermore, gas prices edge up as the weather gets warmer, thanks to greater quantities of additives. These improve performance during the hotter months, but of course, their added cost gets passed on to consumers.
And then there's a lot of speculation about Iran and its threat to shut down the shipping lanes in the Strait of Hormuz, through which vast quantities of crude oil pass en route to the U.S. Most analysts see Iran's ultimatum as a lot of bluster and saber-rattling, but it hasn't stopped the price of crude from scooting higher in recent weeks.
Analysts have differing opinions on how these diverse factors will affect summer gas prices. Some predict the prices will hover around $3.50 by May. Others think we'll be closer to $4 per gallon. Some markets like Chicago and New York could hit average prices of $4.50 to $4.95 by Memorial Day, with higher rates to come during the peak road-trip season.
What's your solution?
Assuming that these analysts are at least partially correct, we'd like to know how you plan to address the rise in gas prices. Will you take fewer road trips? Enjoy more staycations or stick closer to home? Or will you just tighten your belt and cut back elsewhere?
And for those looking at a new car purchase, how does this affect your thinking? Will you look to downsize your ride? Opt for something in the hybrid or electric car family?
Drop us a note, or leave a comment below.