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NYTimes.com Article: Laissez-Faire My Gas Guzzler, Already

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      The article below from NYTimes.com
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      Laissez-Faire My Gas Guzzler, Already

      September 7, 2004

      "I don't like gas being this expensive," said Paul
      Kaesberg, an oncologist at the University of Wisconsin
      Hospital and Clinics in Madison who routinely pays $1.90 a
      gallon. "My driving is integral to my job, it's integral to
      my pleasure in life. I won't cut back on that. I might cut
      back on other things."

      Dr. Kaesberg, whose 2004 Acura sport utility vehicle gets
      18 miles to the gallon, is typical of consumers who started
      the summer with the shock of $2 a gallon gas, but
      resolutely kept driving. Even though oil prices have
      increased 30 percent in the last year, the nation's gusto
      for gasoline has not been shaken.

      Over the Labor Day weekend, for example, about 28.7 million
      of the 34.1 million Americans traveling more than 50 miles
      from home were expected to be driving, a 2 percent increase
      from last year, according to AAA, formerly known as the
      Automobile Association of America.

      The economy, of course, has felt an impact from higher
      energy prices. Many companies, including airlines and
      trucking fleets, have started tacking on surcharges to
      compensate for higher fuel costs for their services,
      effectively passing on the costs to consumers. That, in
      turn, has contributed to spurts of inflation over the
      summer. Manufacturers and retailers say higher energy costs
      remain a threat, even as manufacturing activity remains
      somewhat robust.

      Some symbolic shifts in buying practices have also cropped
      up. Consumers are buying fewer Hummers while sales of
      hybrid vehicles are climbing; recreational boaters are
      opting to share their boats with friends instead of using
      two small vessels for an outing. But for the most part,
      Americans are not altering their fuel-consumption habits as
      they pay some of the highest prices ever for gasoline.

      Purchases of items other than fuel do appear to be
      weakening, however, a familiar development during periods
      of rising energy prices. On Thursday, retailers reported
      weaker-than-expected sales in August, with sales rising
      just 1 percent in the month, as companies including
      Wal-Mart warned that earnings would fall short of

      Still, such figures suggest that Americans are forgoing
      purchases of everyday items so that they can continue to
      drive as much as possible.

      The four-week average for gasoline demand for the week
      ended Aug. 27 was 9.421 million barrels, essentially
      unchanged from the period a year ago, according to the
      Energy Information Administration.

      Part of the explanation is because gasoline prices actually
      declined during the summer, to a national average of about
      $1.86 a gallon, from a record of $2.05 in May, while
      frenzied trading in financial markets pushed the price for
      a barrel of oil to nearly $50 from $40. (The price of crude
      oil is still far from its inflation-adjusted peak of about
      $80 reached in 1980.) That is because refineries in the
      United States produced ample amounts of gasoline in the
      last three months, meeting demand from consumers even as
      speculators placed bets on future swings in the price of
      oil that may have had little to do with actual petroleum

      "I don't think we're going back to $50 without a big supply
      disruption somewhere," said Juha Laiho, a Houston-based oil
      trader for Fortum, a Finnish oil company. "It's logical for
      gasoline to pull back a bit."

      Of course, gasoline at $1.86 a gallon remains about 10
      cents a gallon more expensive than at this time last year,
      according to the Energy Information Administration,
      crimping many drivers. Still, it would have to become much
      more expensive to instill a big change in driving habits.

      Rebecca Lindland, a senior analyst for the automotive
      industry at Global Insight, estimates that gasoline prices
      would have to climb to a nationwide average of $3 a gallon
      for at least six months to alter consumer behavior.

      "Gasoline is still incredibly affordable," Ms. Lindland
      said. "Even with inflation it's not much more expensive
      than it was five years ago."

      Some consumers are feeling the pinch, however. Michael
      McMillan, a firefighter in Los Angeles who makes the
      104-mile round-trip commute three days a week from his home
      in Mission Viejo, Calif., said the price of gasoline was
      behind his decision to trade a Mitsubishi Montero sport
      utility vehicle for a Volkswagen Jetta, which gets almost
      double the gas mileage.

      "I was really looking for something more economical for the
      drive," Mr. McMillan, 38, said. But judging from the
      parking lot at his station, he said: "You'd think there are
      no gas problems at all. You have a half dozen-plus
      jacked-up trucks back there on steroids."

      Seeking out energy-efficient vehicles still seems to be the
      exception rather than the rule. Sales of recreational
      vehicles, for instance, climbed 14 percent in the first
      half of the year from the period in 2003 and rental
      reservations for the vehicles made in the early summer were
      up 34 percent from last year, according to the Recreation
      Vehicle Dealers Association in Fairfax, Va.

      "People work too hard to let even $50 extra in gas prices
      stop them from taking their vacations," said Phil
      Ingrassia, a spokesman for the association.

      At convenience stores, which sell about 75 percent of the
      nation's gasoline, consumers are using credit cards for
      about 60 percent of fuel purchases, a 20 percent jump from
      last year, according to the National Association of
      Convenience Stores. Jay Ricker, who owns 31 convenience
      stores in northeastern Indiana, said he had seen little
      impact on purchases in his stores because of higher
      gasoline prices.

      "There's a lot of grumbling, of course, but unless the
      price gets to $3.50 a gallon behavior won't change," said
      Mr. Ricker, who added that he preferred lower gas prices so
      customers could continue buying higher-margin products at
      his stores. Gasoline in Indiana now costs about $1.75 a

      Some parts of the economy that depend heavily on oil are
      having a hard time. Airlines, for example, are struggling
      to find ways to cut fuel expenses that are expected to cost
      them $6 billion more this year than last year. Airlines are
      doing everything from taxiing out to the runway on one
      engine to cutting the amount of reserve fuel they keep on
      aircraft in case of delays.

      American Airlines, a unit of AMR, said its fuel expenses
      would be $1 billion more this year than it expected, and
      $300 million more in the third quarter alone, a reason why
      it is joining Northwest Airlines in charging passengers $5
      a ticket for trips booked through its reservations agents
      and $10 for those bought at airports. American said that
      would raise $25 million in revenue, hardly a dent in its
      fuel bill.

      Fierce competition among airlines, however, has prevented
      the companies from making fuel surcharges stick through
      ticket price increases. Some low-fare carriers, including
      JetBlue Airlines, are better protected from rising fuel
      costs. David Neeleman, JetBlue's chief executive, told
      analysts this summer that the airline expected to cut its
      costs per available seat mile about 2 percent in the third
      quarter, even with higher fuel prices. That is because
      JetBlue hedged about 75 percent of its fuel purchases for
      this year.

      While certain areas of the economy seek to adapt to higher
      energy costs, such efforts are lost on most drivers. Julie
      Battistelli, 51, a nurse from Saugus, Mass., said she
      shunned public transportation, preferring instead to drive
      a BMW sport-utility vehicle acquired in April that costs
      about $10 a day in gasoline. "I have to have a car; I have
      a little girl I have to drive everywhere," Ms. Battistelli
      said. "In the suburbs you have to drive."

      Reporting for this article was contributed by Micheline
      Maynard in Detroit, Katie Zezima in Boston, Aaron Nathans
      in Madison, Wis., and Chris Dixon in Los Angeles.



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