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The Endless Spiral of Gas Price Tipping Points
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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?