Drivers Spend More on Fuel Than Cars for First Time Since 1982

By Margot Habiby

Aug. 15 (Bloomberg) -- Consumers spent more on gasoline than vehicles and parts for the first time in 26 years in May and June, as U.S. pump prices headed for a record.

Gasoline accounted for about 4.4 percent of spending in June, compared with 3.9 percent for autos and motor parts, according to the U.S. Bureau of Economic Analysis. Both were at about 4 percent in May. The last time gasoline exceeded cars and parts as a percentage of spending was in January 1982.

``Prices of cars, particularly on a quality-adjusted basis, have been trending lower for many years, and the price of gasoline is obviously hugely higher over the past few years,'' said Dana Johnson, chief economist at Comerica Bank in Dallas. ``The two trends have crossed.''

Regular gasoline, averaged nationwide, reached a then-record $4.09 a gallon in June, on its way to the all-time high of $4.114 a gallon on July 17, according to AAA, the biggest U.S. motorist group. The average was $3.778 a gallon yesterday.

Record prices at the pump are already affecting U.S. gasoline demand, which sank to a five-year low in the first seven months of the year, according to the American Petroleum Institute in Washington. The decline in demand has slashed sales of automobiles and cut consumer spending.

Auto sales fell to the lowest in 15 years in July and partly accounted for retail sales dropping for the first time in five months. Consumer spending makes up more than two-thirds of the U.S. economy.

``People are spending as much today on gasoline as they did in the 1970s and 1980s,'' George Magliano, an auto analyst for Global Insight Inc. in New York, said in a telephone interview. ``It's one more statistic in what appears to be an unprecedented string of bad news'' for both the economy and the auto industry.

Iranian Revolution

The last time gasoline as a component of personal spending was this high was in September 1982 during an energy crisis triggered by the 1979 Islamic revolution in Iran, OPEC's second- largest producer. It was the second price shock in a decade, following the 1973 Arab oil embargo.

``Oil consumption was a bigger share of household income back then because household income has grown faster than fuel costs did,'' said Stephen P.A. Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Crude oil for September delivery fell 99 cents, or 0.9 percent, to settle at $115.01 a barrel at 2:52 p.m. on the New York Mercantile Exchange. Oil touched a record $147.27 a barrel on July 11, the same day gasoline futures reached a record $3.631 a gallon.

Demand Lag

U.S. refiners paid an average $33.55 a barrel for imported oil in 1982, more than double the $14.57 a barrel they paid in 1978, according to the U.S. Energy Information Administration, the statistical arm of the Energy Department. Prices rose high enough to cause global demand for oil and petroleum products to drop 8.4 percent between 1978 and 1983.

``You saw a lag,'' said Doug MacIntyre, senior oil market analyst with the EIA in Washington. ``Demand kept on falling in 1982 and 1983, even as prices were falling. A lot of people in the U.S. were buying much smaller cars.''

U.S. auto sales tumbled in July, pushing the industry toward its worst year since 1993, as General Motors Corp., Ford Motor Co. and Toyota Motor Corp. posted declines on lower demand for fuel-thirsty trucks.

The industry's annualized selling rate for July was 12.5 million cars and light trucks, the lowest since March 1993, according to Bloomberg data. Full-year sales in 2007 were 16.1 million.

Sales Tumble

Sales of cars and light trucks fell 29 percent at Chrysler LLC, 26 percent at GM, 15 percent at Ford, 12 percent at Toyota and 1.6 percent at Honda Motor Co., the companies said on Aug. 1.

U.S. refiners will probably pay an average of $111.11 a barrel for imported oil this year, compared with $67.02 a barrel last year and $27.21 a barrel in 2002, according to EIA data.

``What has to happen is you need to have the prices drop a lot more, and they have to stay there,'' Global Insight's Magliano said. ``Right now, it's so ingrained in the consumer's mind and his buying habits that it's going to take a massive reversal to get it out of the consumer's mind.''

Autos aren't likely to be the only part of the retail sector affected if fuel costs continue to siphon off consumer spending, Comerica's Johnson said.

``Whatever they care least about, they're going to consume less of,'' he said. ``A huge run-up in gasoline prices is like a tax increase. It's got to come out of something.''

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.