Looking for a new car? Maybe you have your heart set on something fuel-efficient because of $4 gas? Or perhaps you had a good year and feel you're ready to move up to something with a touch of style, luxury or class?
Get in line. Despite tough times for the auto industry in general, there are some car models--across a broad range of classes and sizes--that are so popular that auto manufacturers are selling them faster than they can build them.
The range of hard-to-get vehicles is as diverse as consumer tastes and budgets in general. Case in point: As expected, the most-wanted vehicle on our list is the fuel-sipping $21,500 Toyota Prius hybrid sedan that gets an Environmental Protection Agency (EPA) combined estimate of 46 mpg. No. 2 on the list? The not-so-expected gas-guzzling $74,700 Lexus LX Series full-size luxury SUV that gets a combined 14 mpg.
Behind The Numbers
To compile our list of the most-wanted vehicles, we used information provided by Ward's Automotive Group, a publisher of industry trade news and data, as well as automaker-supplied days' supply data as a measure of dealer inventory levels.
A low days' supply and low retail turn rate--the amount of time a car spends on a dealer's lot--means some dealerships may have sold out of a vehicle, have only a few on the lot or may not have the style or trim you desire.
Vehicles with the lowest days' supply made the initial list (Ward's says the industry average is 60 days), which was pared down using J.D. Power and Associates' retail turn rate to determine how quickly a model sold in the month of May. The average retail turn rate for all vehicles is 61 days; we only considered vehicles with a rate of 40 days or less, well below the industry average.
So how did the LX 570, in an age of $4-a-gallon gas, make it to the second spot on the most-wanted list?
Even though the premium SUV seems like an anomaly in a time when consumers are snapping up small cars, auto analysts are quick to note that there's still a demand for luxury vehicles and that the SUV market, while struggling, isn't dead. Furthermore, popular vehicles that undergo a redesign, like the Scion xD and the LX 570, often experience an initial surge in sales, says Tom Libby, senior director at J.D. Power and Associates.
"In fact, Lexus is still working through a pre-sold list of loyal Lexus owners who wanted to get the premium SUV as soon as it hit the market," says Curt McAllister, a Toyota spokesman. "Its new styling and creature comforts appeal to loyal Lexus and premium SUV shoppers."
The LX 570 had an average eight-day supply of vehicles at the end of May and the average turn rate for each model was eight days. It has a more powerful 5.7-liter V8 engine producing 383 horsepower, and leather seats with power extendable front seat cushions for added comfort. It also features new technology, such as wide-view front and side monitors located in the grille and under the passenger side-view mirror to aid drivers with hard-to-view areas.
Waiting List For Luxury
If a high-end SUV isn't your style, but you do hope to make that first step into the luxury segment with, say, the all-new Audi A5, you're going to have to wait a little while before you drive off the lot. The luxury midsize coupe and the high-performance S5 model are selling faster than Audi can make them.
The A5 launched in March of this year (the S5 came out in November 2007) with a base manufacturer's suggested retail price of $41,200, but according to Ward's, at the end of May there was an average eight-day supply of A5s on dealers' lots. Comparatively, the retail turn rate, at 39 days, is higher than that of other cars on the list. But since this is a nationwide average and the days' supply is low, a dealership in one part of the country may have exactly the A5 the customer wants, while a dealer elsewhere has a waiting list.
It's a similar situation for the Mercedes-Benz C-Class, the more modestly priced Benz ($33,675), with an average 29 days' supply of cars. While the supply is higher than that of other cars on the list, this model sells very quickly, with a turn rate of only 26 days, meaning that, on average, the C-Class is sold faster than it's produced.
Finding A Fuel-Efficient Car
Toyota is preparing to launch an updated and improved Prius later this year and therefore won't increase production of the 2008 model. Typically, sales trail off as consumers wait for the new model to launch, but that hasn't happened as gas prices continued to soar beyond $4 a gallon and threaten to reach $5 a gallon this summer.
Demand for the Prius has increased, but the "limited supply of Prius in the pipeline is due to a product plan based on our overall production limitations at the Prius factory" in Japan, says Sona Iliffe-Moon, a Toyota spokeswoman. "We are currently running at full capacity and have been for two years. All along we said we would have a supply ceiling."
But times were different then.
"We saw a major shift in May to small and compact conventional cars," says Libby. "Automakers started May with lean inventory. But the percent of compact cars sold in May was 20.3%, up over 15.8% in May last year. They will have to increase production of small cars."
Diane Elnick, industry analyst at Ward's Automotive Group, says that "if demand continues at the high pace it did in May for these vehicles, automakers will have a hard time providing them."
A model that may be facing this problem is the Honda Civic and its hybrid version, which are among the most-wanted vehicles. The gas-powered Civic gets a respectable EPA combined estimated 29 mpg; the hybrid version, 42 mpg. Tim Bothell, new car director at Showcase Honda in Phoenix, Ariz., says 75% of his Civic sales are hybrids. And with Toyota capping production on the Prius, demand for the Civic could increase even more.
"We are not quite at a waiting-list point yet, but we are approaching that level," says Bothell. Ward's says there was a nationwide average 21-day supply of all Civics at the end of May; according to J.D. Power, Civics turn quickly, at an average of only 25 days.
Whether you have a taste for a luxury model or a simple fuel-efficient one, the good news is that you have plenty of options. The bad news: You might have to be willing to wait for the one you really want.
By Jacqueline Mitchell, Forbes.com
Tuesday, July 1, 2008
Sunday, June 29, 2008
When pickup sales dived, automakers changed plans
DEARBORN, Mich. - Every morning, just after getting coffee, Mark Fields fires up his laptop to pore over a computer model showing real-time U.S. auto sales figures.
On this morning in the middle of May, the man who heads Ford Motor Co.'s Americas operations has seen enough.
The line on a chart showing subcompact car sales for the first two weeks of the month goes almost straight up. The one for pickup trucks, Ford's biggest profit center, runs almost straight down.
High gasoline prices and the economic downturn are changing the market far faster than anyone anticipated. Without action, Ford would be making too many trucks and not enough cars, a recipe for a balance sheet peppered with parentheses.
"This is going on 10 weeks where we're seeing this not get any better," Fields recalled in a recent interview. "So we'd better act, and we'd better act now."
Eleven miles away at General Motors Corp., they were reaching the same conclusions. Consumers were delaying big-ticket purchases. Those who bought weren't going for GM or Ford trucks and sport utility vehicles, instead snapping up just about anything that gets more than 30 miles per gallon.
At both companies, executives were alarmed. Eventually they made almost desperate decisions that will cost thousands of jobs, change the vehicles people drive and determine whether their businesses survive.
"We need to get in front of it," Mike DiGiovanni, GM's executive director of global market and industry analysis, recalls saying. "If you wait too long on it, the pain would get a lot worse."
While both companies say they took quick action, critics wonder why they didn't make more fuel-efficient vehicles sooner. After all, there were many signs that gas prices would do nothing but rise.
"Obviously they were making just too much money off their SUVs and pickups," said Roland Hwang, vehicle policy director for the Natural Resources Defense Council. "They couldn't really fully conceive of a world where they would have to rapidly extricate themselves from those markets and those profits."
At GM and Ford, the pain came quickly. Ford was first, announcing on May 22 that it would dramatically cut truck and SUV production and slash its salaried work force. Factory closures are possible when the company announces specifics next month. A week later, Ford announced accelerated plans for a super-compact car to be built in Mexico and sold in the U.S.
Ford also abandoned its long-stated goal of turning a profit in 2009 and now says it will be difficult to break even next year.
GM followed with larger, more specific cuts, announcing at its annual shareholders meeting June 3 that it would close four truck and SUV factories, cutting more than 8,000 jobs. The company, which is clinging to its title as world's biggest automaker, also announced it would build a new small car in the U.S., powered by a 1.4-liter four-cylinder engine capable of getting up to 45 miles per gallon of gas.
But neither company's new compacts will reach showrooms for two years, and when they do, their profit margins will be far smaller than those from trucks and SUVs. Both automakers know they'll have to make it in the meantime with models already on the market or ones that are planned for the next year.
Industry analysts now are starting to question whether both companies, as well as Chrysler LLC, will have to borrow billions more to cover losses until sales recover.
As late as February, things were going pretty much according to both companies' plans. Sales weren't great, but their main barometer of the market, full-size pickup trucks, was holding up at 13 percent of U.S. sales, according to Ward's AutoInfoBank. Each automaker had rolled out new cars in expectation of a gradual shift from trucks to cars, and the cars were selling well.
But Digiovanni said oil prices in February began to rise, still not to an alarming level because they were consistent with previous seasonal spikes. Gasoline was still at a nationwide average of $3.03 per gallon.
In March, though, pickups' share of the market dove to just 11.6 percent and gas rose to $3.24.
"That's when I said 'Red Alert,'" Digiovanni remembered. "We're worried."
The share dropped to 10.8 percent in April, and when Ford's computer model predicted only a 9 percent slice of the market for trucks in the first half of May, CEO Alan Mulally decided to turn the giant ship faster than it had ever turned.
Ford would cut truck production and move as fast as it could to retool factories to make cars and crossovers. It would speed up plans to move small cars and trucks to the U.S. from other areas of the world and slash the normal three- or four-year time frame from design to build.
By May, gas prices had soared to $3.77, and both companies also were experiencing huge price increases in steel and other commodities.
When a market segment such as pickups moves up or down even one-half percent in a year, automakers consider it significant. Four points in 2 1/2 months "puts it into perspective," Fields said.
"We are reacting quickly," he said. "We are reacting more quickly than we ever had in the past."
Even critics say it would have been nearly impossible for the automakers to predict the 74-cent-per-gallon spike in regular gas prices between February and May.
Although Ford's computer model, developed by a physicist and programmer in its research center, can pinpoint real-time retail sales numbers for the whole U.S. market, no company has a model to predict the future with any degree of certainty.
Still, George Pipas, Ford's top sales analyst, said the company saw change coming several years ago and was moving to tilt its model lineup smaller.
"The direction we were headed was based on the point of view that small cars were going to increase their share of the market and trucks and SUVs were going to be less," Pipas said. "It was the speed with which we got there. So we've got to fast-forward the elements of our plan."
Whether Ford, GM and Chrysler LLC can go forward fast enough remains to be seen. But even Hwang of the Natural Resources Defense Council says he thinks the companies will have a brighter future because they are more focused on fuel economy.
"There's no reason why Detroit can't emerge leaner, stronger, more fuel efficient and more sustainable from a business and environmental perspective," he said. "Fuel efficiency is not just because you want to help save the world. It's because you need to save your company."
(This version CORRECTS in 21st graf that Ford moved to retool factories to make cars and crossovers, not retool factories that already make them.)
By TOM KRISHER, AP Auto Writer
Sun Jun 29, 5:29 PM ET
On this morning in the middle of May, the man who heads Ford Motor Co.'s Americas operations has seen enough.
The line on a chart showing subcompact car sales for the first two weeks of the month goes almost straight up. The one for pickup trucks, Ford's biggest profit center, runs almost straight down.
High gasoline prices and the economic downturn are changing the market far faster than anyone anticipated. Without action, Ford would be making too many trucks and not enough cars, a recipe for a balance sheet peppered with parentheses.
"This is going on 10 weeks where we're seeing this not get any better," Fields recalled in a recent interview. "So we'd better act, and we'd better act now."
Eleven miles away at General Motors Corp., they were reaching the same conclusions. Consumers were delaying big-ticket purchases. Those who bought weren't going for GM or Ford trucks and sport utility vehicles, instead snapping up just about anything that gets more than 30 miles per gallon.
At both companies, executives were alarmed. Eventually they made almost desperate decisions that will cost thousands of jobs, change the vehicles people drive and determine whether their businesses survive.
"We need to get in front of it," Mike DiGiovanni, GM's executive director of global market and industry analysis, recalls saying. "If you wait too long on it, the pain would get a lot worse."
While both companies say they took quick action, critics wonder why they didn't make more fuel-efficient vehicles sooner. After all, there were many signs that gas prices would do nothing but rise.
"Obviously they were making just too much money off their SUVs and pickups," said Roland Hwang, vehicle policy director for the Natural Resources Defense Council. "They couldn't really fully conceive of a world where they would have to rapidly extricate themselves from those markets and those profits."
At GM and Ford, the pain came quickly. Ford was first, announcing on May 22 that it would dramatically cut truck and SUV production and slash its salaried work force. Factory closures are possible when the company announces specifics next month. A week later, Ford announced accelerated plans for a super-compact car to be built in Mexico and sold in the U.S.
Ford also abandoned its long-stated goal of turning a profit in 2009 and now says it will be difficult to break even next year.
GM followed with larger, more specific cuts, announcing at its annual shareholders meeting June 3 that it would close four truck and SUV factories, cutting more than 8,000 jobs. The company, which is clinging to its title as world's biggest automaker, also announced it would build a new small car in the U.S., powered by a 1.4-liter four-cylinder engine capable of getting up to 45 miles per gallon of gas.
But neither company's new compacts will reach showrooms for two years, and when they do, their profit margins will be far smaller than those from trucks and SUVs. Both automakers know they'll have to make it in the meantime with models already on the market or ones that are planned for the next year.
Industry analysts now are starting to question whether both companies, as well as Chrysler LLC, will have to borrow billions more to cover losses until sales recover.
As late as February, things were going pretty much according to both companies' plans. Sales weren't great, but their main barometer of the market, full-size pickup trucks, was holding up at 13 percent of U.S. sales, according to Ward's AutoInfoBank. Each automaker had rolled out new cars in expectation of a gradual shift from trucks to cars, and the cars were selling well.
But Digiovanni said oil prices in February began to rise, still not to an alarming level because they were consistent with previous seasonal spikes. Gasoline was still at a nationwide average of $3.03 per gallon.
In March, though, pickups' share of the market dove to just 11.6 percent and gas rose to $3.24.
"That's when I said 'Red Alert,'" Digiovanni remembered. "We're worried."
The share dropped to 10.8 percent in April, and when Ford's computer model predicted only a 9 percent slice of the market for trucks in the first half of May, CEO Alan Mulally decided to turn the giant ship faster than it had ever turned.
Ford would cut truck production and move as fast as it could to retool factories to make cars and crossovers. It would speed up plans to move small cars and trucks to the U.S. from other areas of the world and slash the normal three- or four-year time frame from design to build.
By May, gas prices had soared to $3.77, and both companies also were experiencing huge price increases in steel and other commodities.
When a market segment such as pickups moves up or down even one-half percent in a year, automakers consider it significant. Four points in 2 1/2 months "puts it into perspective," Fields said.
"We are reacting quickly," he said. "We are reacting more quickly than we ever had in the past."
Even critics say it would have been nearly impossible for the automakers to predict the 74-cent-per-gallon spike in regular gas prices between February and May.
Although Ford's computer model, developed by a physicist and programmer in its research center, can pinpoint real-time retail sales numbers for the whole U.S. market, no company has a model to predict the future with any degree of certainty.
Still, George Pipas, Ford's top sales analyst, said the company saw change coming several years ago and was moving to tilt its model lineup smaller.
"The direction we were headed was based on the point of view that small cars were going to increase their share of the market and trucks and SUVs were going to be less," Pipas said. "It was the speed with which we got there. So we've got to fast-forward the elements of our plan."
Whether Ford, GM and Chrysler LLC can go forward fast enough remains to be seen. But even Hwang of the Natural Resources Defense Council says he thinks the companies will have a brighter future because they are more focused on fuel economy.
"There's no reason why Detroit can't emerge leaner, stronger, more fuel efficient and more sustainable from a business and environmental perspective," he said. "Fuel efficiency is not just because you want to help save the world. It's because you need to save your company."
(This version CORRECTS in 21st graf that Ford moved to retool factories to make cars and crossovers, not retool factories that already make them.)
By TOM KRISHER, AP Auto Writer
Sun Jun 29, 5:29 PM ET
3 surprising fat burning tricks
Exercise makes you happy, healthy, sexy, and, unfortunately—really, really hungry. Back when I had the time to log many workouts every week, I fought constantly not to eat back all the calories I burned. Sometimes I was successful, other times—like the day I came back from a lunchtime power yoga class to find a monster brownie on my desk—not so much. You want to fuel your body when you work out of course, but not with mammoth brownies or seconds of pasta, or giant protein shakes you could swim in. A better idea: Understand the source of your raging appetite. Exercise is believed to trigger the release of a hunger-boosting hormone called ghrelin (it sounds like gremlin for a reason). It’s meant to protect the body from losing too much weight too quickly, but considering most gyms practically have a food court these days, that’s not a danger most of us face. Here’s how I keep the ghrelins at bay:
Snack First, Sweat Later
Twenty minutes later, to be exact. Exercising on an empty stomach lowers blood sugar, which can increase your appetite so you inhale your food later. You can always go for that pre-workout stalwart, a banana, but I’m not a huge fan, so I reach for about 4 ounces of yogurt or another carb-rich snack instead.
Take Preemptive Notes
Writing down everything you consume is a proven way to lose weight, but try this trick: Do it before you eat. Seeing what you’re about to put in your mouth—on paper—gives you instant perspective. Case in point: “Turkey sandwich plus two bags of chips plus a soda plus five of those cookies my co-worker brought it.” Would you eat all that? I think not.
Drink Lots of Water—On the Rocks
Studies show people who drink water regularly eat 200 fewer calories a day. (Here are some other sneaky tips to get rid of extra calories.) If you make it ice-cold, you may even burn extra calories without trying—researchers in Germany found that drinking six glasses of ice water a day can raise you metabolism by 50 calories. I’ll drink (a whole lotta frigid H20) to that!
What’s your favorite workout snack? How do you keep postworkout hunger under control? Please tell me your tricks!
Start Eating Better Today:
Tricks to Slim Down Your Favorite Foods
by Liz Vaccariello, Editor-in-Chief, PREVENTION, on Thu Jun 12, 2008 6:53am PDT
Monday, June 23, 2008
Some signs of relief on gasoline prices
New York - Some of the long-term factors that have pushed oil prices to record levels are starting to change.
In large part because gasoline prices are over $4 a gallon, demand for fuel in the US is falling for the first time in 17 years. China is raising prices for gasoline and diesel – a move that might ultimately lower demand. And, on Sunday, there were signs supply might increase as Saudi Arabia's oil minister indicated that the country would increase production through the end of the year if needed. Iraq is also set to sign contracts with foreign companies to hike production.
"It's all a step in the right direction," says Phil Flynn, an oil analyst and trader at Alaron Trading in Chicago. "These are certainly signs to the market that prices can't just continue to go up."
However, some of the shorter-term factors are becoming worse.
On Friday, the energy markets were digesting news of an attack on a Royal Dutch Shell oil platform in Nigeria that shut down over 200,000 barrels of oil per day in production. Then energy traders fretted over news of an Israeli military exercise involving 100 planes, with some speculating that the aim of the exercise was to send a message about Iran's nuclear ambitions.
And, it's not clear how badly the US corn crop, used to make ethanol, a gasoline additive, has been hurt by the flooding in the Midwest.
"These factors are keeping the price up for now," says Mike Fitzpatrick, vice president of energy risk management at MF Global, a commodities brokerage.
By the end of day Friday, the price of oil had closed at $134.62, down 24 cents for the week. Nationally, the price of gasoline is $4.07 a gallon, according to American Automobile Association, down 1 cent a gallon from the record high.
Short term tensions
The attack on the Royal Dutch Shell platform occurred last Thursday, about 75 miles offshore. Although Nigerian rebels had attacked oil rigs before, this is the furthest from shore they have ventured. "When the manager saw the attack, he immediately shut down production of the oil and natural gas," says Rainer Winzenried, a spokesman for Shell in The Hague, Netherlands.
As of Sunday, the Shell platform was still shut down. Mr. Winzenried says Shell has declared force majeure, a legal move that frees the company from its obligation to deliver oil. "It can only put upward pressure on the prices," says Mr. Fitzpatrick.
The energy markets were also roiled by a news story in The New York Times that Israel had mounted a military exercise involving 100 F-15s and F-16s. The article linked the exercise to Iran's nuclear ambitions. "What are the Israelis thinking?" asks Fitzpatrick. "It lights up the whole area."
Over the short run, the energy markets are also watching for updated corn crop estimates given the flooding in the Farm Belt. On the futures market, the new crop corn is up about 25 percent in the first half of June. "One of the uncertainties is the ethanol situation in the Midwest," says Tancred Lidderdale, an energy analyst at the Energy Information Administration in Washington.
"A number of plants are shut down, there has been a disruption of the distribution process, and the railroads are flooded," he says. "We typically have gotten imports from Brazil, and they can increase their exports but I'm not sure they will."
With gasoline prices on the rise for months, consumers are now starting to cut back. According to the EIA, in the first quarter of the year, demand for gasoline fell about 100,000 barrels per day, or about 1.3 percent of daily consumption. For the year, EIA expects consumption to drop 0.7 percent over 2007. "This would be the first year over year decline in consumption since 1991," says Mr. Lidderdale.
The lower gasoline consumption is probably due largely to less driving. According to Department of Transportation statistics released last week, from November through April, Americans drove 30 billion fewer miles than the same period the prior year. "That's the sharpest drop in recorded history, some 66 years of collecting data," says Doug Hecox, a spokesman for the Federal Highway Administration in Washington, adding that "the drop took place before the price hit $4 a gallon."
China's price hike
Initially, oil prices fell after China announced it was raising the price of gasoline by 17 percent and the price of diesel by 18 percent. Some analysts thought it would cut demand, which grew by 7 to 8 percent on an annual basis in the first quarter. But, in the last three months, demand growth has slowed to 3 percent, partly because of shortages, says Paul Ting, an energy analyst.
Now, he says Chinese refiners, although they are still losing money, might increase production somewhat. "So, we have conflicting forces, higher prices which might have some marginal impact on demand and more product available from the refiners," he says. "I think the end result will be an increase in demand, but not back to the 8 percent growth rate."
Slowing demand may be met by an increase in supply. On Sunday, Saudi oil minister Ali el-Naimi, at a special meeting of oil consumers in Jeddah, said production might increase over the current 9.7 million barrels of oil per day if the market needs extra supplies.
The kingdom had already committed to produce an extra 200,000 barrels a day starting in July on top of an additional 300,000 produced in May.
The extra Saudi production comes at a time when Iraq is also talking about adding to its capacity. Last week, the Iraqi government said its production was up to 2.5 million barrels per day, about where it was prior to the coalition invasion. On Sunday, officials also said it was awarding additional oil contracts to 41 foreign companies in the hope of boosting exports by another 500,000 barrels per day. It will be the first time the global energy companies will be back in Iraq since Saddam Hussein kicked them out in 1972.
Wire service material was used in this story.
By Ron Scherer
Mon Jun 23, 4:00 AM ET
In large part because gasoline prices are over $4 a gallon, demand for fuel in the US is falling for the first time in 17 years. China is raising prices for gasoline and diesel – a move that might ultimately lower demand. And, on Sunday, there were signs supply might increase as Saudi Arabia's oil minister indicated that the country would increase production through the end of the year if needed. Iraq is also set to sign contracts with foreign companies to hike production.
"It's all a step in the right direction," says Phil Flynn, an oil analyst and trader at Alaron Trading in Chicago. "These are certainly signs to the market that prices can't just continue to go up."
However, some of the shorter-term factors are becoming worse.
On Friday, the energy markets were digesting news of an attack on a Royal Dutch Shell oil platform in Nigeria that shut down over 200,000 barrels of oil per day in production. Then energy traders fretted over news of an Israeli military exercise involving 100 planes, with some speculating that the aim of the exercise was to send a message about Iran's nuclear ambitions.
And, it's not clear how badly the US corn crop, used to make ethanol, a gasoline additive, has been hurt by the flooding in the Midwest.
"These factors are keeping the price up for now," says Mike Fitzpatrick, vice president of energy risk management at MF Global, a commodities brokerage.
By the end of day Friday, the price of oil had closed at $134.62, down 24 cents for the week. Nationally, the price of gasoline is $4.07 a gallon, according to American Automobile Association, down 1 cent a gallon from the record high.
Short term tensions
The attack on the Royal Dutch Shell platform occurred last Thursday, about 75 miles offshore. Although Nigerian rebels had attacked oil rigs before, this is the furthest from shore they have ventured. "When the manager saw the attack, he immediately shut down production of the oil and natural gas," says Rainer Winzenried, a spokesman for Shell in The Hague, Netherlands.
As of Sunday, the Shell platform was still shut down. Mr. Winzenried says Shell has declared force majeure, a legal move that frees the company from its obligation to deliver oil. "It can only put upward pressure on the prices," says Mr. Fitzpatrick.
The energy markets were also roiled by a news story in The New York Times that Israel had mounted a military exercise involving 100 F-15s and F-16s. The article linked the exercise to Iran's nuclear ambitions. "What are the Israelis thinking?" asks Fitzpatrick. "It lights up the whole area."
Over the short run, the energy markets are also watching for updated corn crop estimates given the flooding in the Farm Belt. On the futures market, the new crop corn is up about 25 percent in the first half of June. "One of the uncertainties is the ethanol situation in the Midwest," says Tancred Lidderdale, an energy analyst at the Energy Information Administration in Washington.
"A number of plants are shut down, there has been a disruption of the distribution process, and the railroads are flooded," he says. "We typically have gotten imports from Brazil, and they can increase their exports but I'm not sure they will."
With gasoline prices on the rise for months, consumers are now starting to cut back. According to the EIA, in the first quarter of the year, demand for gasoline fell about 100,000 barrels per day, or about 1.3 percent of daily consumption. For the year, EIA expects consumption to drop 0.7 percent over 2007. "This would be the first year over year decline in consumption since 1991," says Mr. Lidderdale.
The lower gasoline consumption is probably due largely to less driving. According to Department of Transportation statistics released last week, from November through April, Americans drove 30 billion fewer miles than the same period the prior year. "That's the sharpest drop in recorded history, some 66 years of collecting data," says Doug Hecox, a spokesman for the Federal Highway Administration in Washington, adding that "the drop took place before the price hit $4 a gallon."
China's price hike
Initially, oil prices fell after China announced it was raising the price of gasoline by 17 percent and the price of diesel by 18 percent. Some analysts thought it would cut demand, which grew by 7 to 8 percent on an annual basis in the first quarter. But, in the last three months, demand growth has slowed to 3 percent, partly because of shortages, says Paul Ting, an energy analyst.
Now, he says Chinese refiners, although they are still losing money, might increase production somewhat. "So, we have conflicting forces, higher prices which might have some marginal impact on demand and more product available from the refiners," he says. "I think the end result will be an increase in demand, but not back to the 8 percent growth rate."
Slowing demand may be met by an increase in supply. On Sunday, Saudi oil minister Ali el-Naimi, at a special meeting of oil consumers in Jeddah, said production might increase over the current 9.7 million barrels of oil per day if the market needs extra supplies.
The kingdom had already committed to produce an extra 200,000 barrels a day starting in July on top of an additional 300,000 produced in May.
The extra Saudi production comes at a time when Iraq is also talking about adding to its capacity. Last week, the Iraqi government said its production was up to 2.5 million barrels per day, about where it was prior to the coalition invasion. On Sunday, officials also said it was awarding additional oil contracts to 41 foreign companies in the hope of boosting exports by another 500,000 barrels per day. It will be the first time the global energy companies will be back in Iraq since Saddam Hussein kicked them out in 1972.
Wire service material was used in this story.
By Ron Scherer
Mon Jun 23, 4:00 AM ET
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