Air Date: Week of October 7, 2005

With the average cost of a gallon of regular unleaded gasoline hovering at nearly $3 dollars a gallon nationwide, people are doing what they can to save money. Steve Curwood talks to Danny Hakim, the Detroit bureau chief for the New York Times about how surging gas prices are changing people’s behavior.

Transcript

CURWOOD: It's Living on Earth. I'm Steve Curwood. Here in the U.S. gasoline is running about a dollar a gallon higher than it was a year ago, and diesel has a seen a similar increase. Few analysts expect prices to go down anytime soon, and some say they could stay the same or even go higher. So, how are we as consumers reacting? I put that question to Danny Hakim, who covers the auto industry for the New York Times.

HAKIM: Well, certainly people are a lot more conscious of gas prices. Most car dealers you talk to, and automakers, say that, you know, a couple years ago, two, three years ago, nobody really cared about fuel economy when they were shopping for a car. It was just way down on the list of what people were thinking about. Now it’s a top concern. Now it’s one of the first things people ask about, is what kind of mileage does this vehicle get.

You already see people changing their purchase decisions. You know, you definitely see a movement to passenger cars again. And the passenger car market has been in decline for years, and this is the first year we’ve seen a resurgence. We’ve also had four straight weeks of lower gas consumption so that’s a sign that people are doing things like carpooling, or just cutting back on the number of trips they’re taking.

CURWOOD: What signs are there that people are going more, say, to public transportation?

HAKIM: Well, there’s just some numbers that came out a few weeks ago that showed cities across the country are really seeing record levels of public transit being used.

CURWOOD: How much does gas have to cost for us to really change our habits? To do things like, you know, move closer to work, or own fewer, or different, kinds of cars?

HAKIM: Well, that’s the big question, especially in Detroit. That’s almost a philosophical question here. When I first started covering the auto industry four years ago, what I always heard from auto executives was gas has to get to three dollars a gallon and stay there for a while to really change behavior. Now that gas, you know, has been at three dollars a gallon, it’s been balancing around three dollars a gallon –

CURWOOD: Yeah.

HAKIM: – I more often hear that gas has to get to five or six dollars a gallon, like it is in Europe, to really change behavior (LAUGHS). So, I think we’ve got a moving target there.

CURWOOD: So, give me a scorecard of the position of the various vehicle makers, how they are situated for this change. You know, who’s ready for this and who, in your opinion, is not quite as ready?

HAKIM: If gas prices remain high going forward I think Honda is in a pretty good position because they’ve, sort of, they’ve made their bet on, you know, a lighter weight, more fuel-efficient lineup. I think the companies that are going to be hurting are clearly going to be Ford and General Motors. They have the most to lose here because they’ve been very dependent on the largest SUVs and pickup trucks. On October 3rd, when the two companies announced their sales results, Standard & Poor’s put them both on negative credit watch, which means they both could be downgraded further into junk bond territory.

CURWOOD: What do companies like General Motors and Ford say in the face of these declining sales and the price of gas going up?

HAKIM: Ford has been saying for months that gas prices do matter, that it’s a concern, and that they’re moving to reposition their lineup. More recently, GM has been saying the same thing.

Ford right now is launching a crop of new midsize cars from their Ford, Lincoln and Mercury brands, and these will compete with vehicles like the Toyota Camry. And they’ve put a lot of effort in these vehicles. The new Ford model’s called the Fusion. It’s got some pretty good reviews so far, and I think it will be a more credible competitor in the car segment than the company’s had in some time.

The problem for GM, though, is the next thing they’re going to release is the new generation of their largest SUVs and pickup trucks. You know, things like the Suburban and the Tahoe are going to start to arrive in showrooms at the beginning of next year and this might not be a real hospitable climate to start selling a new Tahoe and a new Suburban and a new Escalade.

CURWOOD: Some of the American carmakers say, “look, one reason that things are difficult is that the Japanese are playing on a different playing field, particularly when it comes to the workforce and the large part of the workforce that’s retired.” For example, in Japan there is widespread health insurance that’s made available through the government rather than through employers whereas, here in the United States, there’s a sizable commitment to take care of health insurance for the people who used to work at the big American carmakers, and that this really has them at a disadvantage. How important is this factor, do you think, in their present troubles?

HAKIM: I don’t think there’s any doubt that it’s a big factor. I don’t think it’s the only factor, but there’s no doubt that rising healthcare costs are just a real terrible burden for just almost any old line industrial company you can think of in the United States.

For General Motors, they spend about $1,500 per vehicle produced in the United States on healthcare. Toyota spends about $300, I think. I mean, it’s a fraction of what GM spends. That’s a real big gap per vehicle, that’s more than a thousand dollar gap per vehicle just on healthcare. GM spends more on healthcare than they do on steel.

So what happens to GM, you know, has a lot of ramifications for the country. GM provides healthcare benefits to more than a million Americans. It’s the largest private provider of healthcare. So it means a lot to the country’s economy.

CURWOOD: With me has been Danny Hakim. He’s the Detroit bureau chief for the New York Times. Danny, thanks for coming on the show again.

HAKIM: Well, thank you.