Real or Unreal

By Brendan Moore

03.18.2008

I’m talking to this guy I know the other day, and he allows as to how he is going to buy a Toyota Tundra shortly because he just can’t resist the current incentives Toyota is offering on the truck. He doesn’t need a pickup truck for anything he does on a regular basis, he’s just one of those guys that wants a truck to use like a car. He loves pickup trucks and is unapologetic about his passion. He’s held out on buying one for awhile, and figures that now is the time, that it’s not going to get any better in terms of discounts.

I’m down with all that, even though I tell him that it could indeed get better in the coming months in terms of factory discounts. The market for full-size pickup trucks is not exactly looking rosy this year. In the same vein, I ask him if he calculated the costs of gasoline during his loan period so he could have a total expenditure amount per month, after he adds up his payment, insurance, etc. Because, you know, gas isn’t exactly cheap anymore. Because I remembered that he had said before that he couldn’t lease because he puts too many miles per year on his vehicles.

He says, oh yeah, of course, I did the math and I can afford it easy, just as long as gasoline doesn’t go up to more than $3.50 a gallon this year, and then drops back to around $2.00 a gallon in 2009.

I pause, and ask him, so, how is that going to happen?

And he replies, that everybody knows that gasoline will go back down to something reasonable pretty soon. You know, gas goes up and down, and it’ll go back down again pretty soon. I’m thinking it will be under $2.00 a gallon for a couple of years soon because it’s been up so high the last few years.

I though he was kidding, but then I realized he wasn’t kidding, that he really, truly believed what he was saying. I asked him what he was basing that assumption on, and he just repeated the same rationale. I told him that I just couldn’t see that happening, and further, that I couldn’t envision a scenario anywhere in the foreseeable future where gasoline would be cheap again in the United States. I told him about the ever-increasing demand for oil from countries like China, India, and Russia, our own demand here in the U.S., and the fact that oil is getting more scarce in the world. I said, you know, the economic forces of supply and demand are at work here.

He looked at me with a mixture of pity and condescension, like I was feeble-minded or something. There is plenty of oil, he declared. He said the only reason the price of oil was up was because of a conspiracy among the oil companies and the Arabs to gouge the American public, and as soon as those two entities felt they had gotten away with all the profiteering the American public would withstand, the price of oil would drop like crazy. The price of gasoline would subsequently follow.

He said all this is a tone that suggested that I was really kind of an idiot for not knowing this.

Now, I don’t know this guy well, we’re not pals or anything, but he seems as if he’s possessed of at least average intelligence, and I know he has a college degree and holds a white-collar job at a small IT company that provides technology assistance to companies on a contract basis.

If he believes the situation with gasoline prices now and in the future to be as he described, it begs the question: How many others are basing their vehicle-buying decisions on equally dubious reasoning? I wonder just how many people are counting on the price of gasoline going back to the impossibly low prices of say, ten years ago, or even five years ago.

I remember that in 1999, a price war broke out among the gasoline stations where I lived at the time, and regular unleaded went from the already-low $1.20 a gallon to under a dollar a gallon for a duration of several months.

Is it a reasonable expectation to believe that gasoline will ever be cheap again here in the U.S.? To me, the answer is obvious, and it’s “no”.

But maybe I’m missing something here…

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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9 Comments

  1. You’d be surprised how many people belive the same thing or something very close to it.

    Or how about this: “when Bush gets out of office, oil will drop like a rock because he and his oil buddies won’t be able to keep the price of oil high anymore.” This is popular where I work, and they’re not even liberals.

  2. Like the previous poster – I work with quite a few people who believe that the rise in gas prices is a temporary thing. When we discuss the issue, I bring up subjects like the limited refining capacity in the US, the worldwide increase in demand for fossil fuels, the destabilizing effect of the Iraq war in the Middle East, and Iraq – once the world’s 2nd largest oil exporter pretty much out of the market – their eyes glaze over and I get the same “Bush and his oil buddies, blah blah” response. Then they make the commute to the inland empire from LA in 8cyl Mustangs, skyjacked 4×4 Fords, and Chrysler 300s – all with just them behind the wheel and no passengers. It’s a crazy country we live in.

  3. I wish gas would go back down, but I think it’s all uphill from here on out.

  4. Anybody who things gas will be cheap again needs to pay attention as opposed to talking with their equally dumb friends.

  5. What if those people are right? Then when gas prices go down, you just say its a coincidence? Is it a coincidence that when an oilman is Prez and and an oilman is VP, that gas goes up to ridiculous prices? Maybe, maybe not.

  6. If we could go to electric cars, the price of gasoline would really drop.

  7. The problem is, even if gas did get cheaper because of a mass migration to electric cars, then cheap gas would again entice people back into internal combustion engines. Supply and demand and all that, you know…

  8. And a botle of Coca-Cola will be a quarter and Hall and Oates will be in the Top Ten again.

  9. Gasoline will be four bucks this summer. Gasoline will be five bucks Q4 2009. My prediction, you heard it from me first.

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