The Endless Spiral of Gas Price Tipping Points

The current spike in gas prices has brought the national average to about $3.50 a gallon—with some gas stations in California already past the $4.00 mark. Nobody knows how high gas prices will go, but everybody is wondering what the new tipping point is for fundamental change in general consumer purchasing, driving trends, and car buying decisions.

It appears the tipping point is a moving target. Jessica Brady, a media relations specialist for AAA South who studies fuel prices, said the tipping point price for consumers to change driving habits used to be $3 a gallon, but now it’s about $3.50. Jeff Lenard, spokesman for the National Association of Convenience Stores, said a study done three years ago found the average tipping point for most people was about $3.71 a gallon. IHS, the business information firm, various AAA regional offices, and others put the current tipping point at $4 a gallon.

The Tipping Point Constantly Grows Higher

A new survey from Kelly Blue Book, the car shopping website, indicated that consumer car buying decisions don’t budge at $3.00 per gallon. However, at the $3.50 per gallon price point, more than half of consumers start to think about the price of gas. By $4.00 per gallon, 80 percent of consumers say their vehicle consideration will be affected.

Mike Jackson, CEO of AutoNation, the country’s largest new car dealership chain, says buying patterns dramatically change when gas prices pass $4 a gallon nationally.

Paul Taylor, chief economist for the National Automobile Dealers Association, puts the tipping point slightly higher at $4.50, for when consumer interest significantly shifts towards fuel efficiency. “Generally it takes a level that consumers have not seen before,” Taylor said. “Gasoline prices in excess of $4.50 per gallon are likely to have a more dramatic increase upon consumer choices.”

So, if $4.50 is the new $4, what happens if and when we reach a national average of $5 a gallon? According to KBB, only then will nearly all car shoppers—about 95 percent at least—change their vehicle choice. If current trends continue—especially if political unrest in the Middle East spreads to Iran, Iraq or Saudi Arabia—then we’ll have a chance to test the $5 tipping point theory.

What about 2012? Will $5 become the new norm, and $6 a gallon become the new tipping point?

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  • JBob

    You can talk tipping points all you want. Eventually those costs effect not just the price of gas, but food and commercial products that rely on crude.

    So even when you’re paying $1-3 more per gallon, you’re also paying a percentage increase at the grocery and any products via online or at a mall.

    Eventually your budget will determine the tipping point.

    Last go around at the $4 mark, we decided to drop a car, do more car-pooling and eventually supplemented our half our trips to work via riding riding our bikes.

    Between my wife and myself we’re saving around $300 a month on gas, an additional $900 a year on insurance and most likely a few hundred more on basic upkeep.

    The health benefits and weight drops are just a bonus 😉

  • Shines

    The article talks about the tipping point for a dramatic change – most people at this price or 80% of folks at that price. The price of gas is up at least 20% now. What if only 20% of buyers switch to hybrids or significantly more fuel efficient cars over the next few months? Manufacturers have already been promoting fuel efficiency more than in the past. My wife drives a small SUV and she is already complaining about high fuel prices. If the price stays above 3.50 for more than 6 months the shift will be on. Especially for those folks with already tight budgets.

  • Max Reid

    Every day some 40,000 vehicles are sold in China with another 20,000 vehicles in rest of the World. Gas prices will continue to increase whether peace comes in Middle East or not.

    Alternatives are
    Hybrids, NGVs, Flexfuel
    mass transit.

  • indigo

    The one thing that’s good about high gas prices is that people wo drive SUBs will truly suffer. I want them all to go bankrupt. They deservedly pay $400 for a fillup.

  • Charles

    I am not sure there is a tipping point this time. I believe that most people think this is a spike caused by Libya and that the price will come back down after Qaddafi suppress the rebellion or is killed. They are not going to change their buying habits unless they think fuel prices are truly going to spiral upward for a long time.

    Personally I do think the price is going to spiral upward until there is another world wide recession. This may just be a spike, but the upward pressure caused by the increasing demand in China, India and other developing countries will take their toll on our cheap fuel society.

  • David

    There’s another factor – the debt crisis. I, for one, have a car payment that is going away. Gas could DOUBLE *again* in proce from the $3.50 I’m seeing now to $7 and it wouldn’t come close to offsetting the car payment on my ’02 Camry that vanishes in a few months.

    For me, as much as I’d love to have a Volt or a C-Max EV or any of the other hybrids or extended range EVs coming out, I have to balance that desire AGAINST not wanting to pick up another car payment. And that is considering that I make a decent living and have a VERY steady job.

  • Indigo

    I’d love to see the car companies stop “dumbing down” the American versions of globally-sold vehicles. It’s pretty common to find 60 MPG cars in Europe, but the same vehicle sold in the USA always has to be fitted with a 200+ HP engine with short gearing and a 0-60 speed of under 7 seconds. The result? A car that gets 25 MPG or less.

  • quailallstar

    Get a Diesel (TDI or CDI) vehicle and just drive more prudently. 🙂

    50mpg is nice and especially when there are no batteries required… Sorry but I’m highly anti-hybrid.

  • Bijork

    Amen to that!

  • Yegor

    Yeah, Tipping Point is much higher in 2011 then what it was in 2009 when Hybrid market share was 2.79% with average crude oil price of $54.24.

  • Pablo

    The concept of inflation correction and a concept “price normalized to inflation level of YYYY year” needs to be included.
    If the increase is close to the inflation, this is not a real increase.
    We need to discuss only the remaining part after inflation correction.

  • Dave Smith

    If you boil a pot of water and put a Frog in, the frog will immediately jump out….

    But, what the big boys found out is if you put the frog in the water and slowly turn up the heat, the frog won’t jump out and will die.

    I’d like to consider myself a smart frog, It’s too hot already I’m out of here. Sadly, my way of living has been directly tied to the well being of the not so smart frogs so maybe we can influence them by jumping out first. 😀

  • Capt. Concernicus

    Diesels are great if you spend the vast majority of your time on the highway.

    Otherwise they’re just like regular ICE vehicles.

  • Mr.Bear

    As for the article, I think we’ve had political unrest in Iraq ever since the US invaded. Saudi would probably just hand out a stipend to quell unrest.

    As for driving habits, mine changed at $3/gal. I mothballed my Jeep Wrangler for a year until I could get a decent price for it, just before winter.

    Then I went out and bought a Prius. I went from buying 15 gallons every 4 days to buying 8 gallons every 9 days. Even at $3.40/gal, I still have yet to spend more than $26 for a full tank.

    Now I’m just waiting for the light rail extension that stops within 5 minuties of my house to be completed in August. Then I’ll only be driving 40 miles a week instead of 40 miles a day.

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  • tapra1

    a media relations specialist for AAA South who studies fuel prices, said the tipping point price for consumers to change driving habits used to be $3 a gallon, but now it’s about $3.50. Jeff Lenard, spokesman for the National Association of Convenience Stores.Engg Blog

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