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Gas prices put brake on spring break for many

Gas prices put brake on spring break for many

 

Vehicles drive along the beach in Daytona Beach, Fla., on Aug. 19, 2010.

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University of Iowa sophomore Jimmy Novak didn’t let $3.50-a-gallon gasoline prices keep him from making a spring break pilgrimage to Daytona Beach, Fla., with his fraternity brothers last weekend.

But the prospect of $50 fill-ups did alter his behavior: “We’re squeezing five people in a car to save money on gas, and we made a ton of sandwiches before we left instead of stopping for fast food,” says Novak. “We just told ourselves it’s going to cost a pretty penny.”

For Novak and thousands of other spring vacationers, escalating fuel prices are putting the brakes on road trips. According to the motorist group AAA, the average for a gallon of regular is up 37 cents since Feb. 22, the second-fastest rate of increase in the industry’s history.

Some would-be vacationers are staying home, while others will “still travel, but compensate by spending less,” says AAA spokesman Troy Green. According to an unscientific online poll by USA TODAY, a quarter of nearly 700 respondents said high gas prices had prompted them to cancel a spring trip, with an additional 24% traveling but staying closer to home.

And if Middle East uncertainty continues to translate into pain at the pump, the “staycation” could make a comeback: Green notes that the number of Memorial Day road trips took a nose dive in 2008 when gas prices were heading toward an all-time average high of $4.11 a gallon, set in July of that year.

For now, travel marketers remain optimistic that a trifecta of a severe winter, delayed gratification and improving economy will trump soaring gas prices. Advance bookings for March and April are up sharply at many destinations, and recent airfare increases tied to the rising cost of fuel are making road trips cheap by comparison.

Lodging reservations at the spring break hot spot Panama City, Fla., are on par with last year’s migration, which took place before the Deepwater Horizon oil spill in late April, says Dan Rowe, CEO of the Panama City Convention and Visitors Bureau.

March is the city’s third-biggest tourism month after June and July, and the bureau held promotional events at several Midwestern college campuses this winter to reassure students that area beaches were clean and free of oil.

“If you spread out the incremental cost (of higher gas prices) over several days, it’s still a relatively minor part of a trip,” says Rowe. “I don’t think people are going to sacrifice a week at the beach over a few extra dollars.”

But, adds Adam Weissenberg, vice chairman of Deloitte’s tourism, hospitality and leisure sector, “If prices continue rising to $4.50 or $5 a gallon, that affects people emotionally.”

Cutting corners

For Billy and Patricia Carr, who work part time delivering vehicles for a Georgia automobile dealership, the pain is already palpable. Last week, they stopped at a suburban Atlanta station to put $5 of gas into the pickup they were dropping off. “Normally, we fill them up,” said Billy Carr, 72.

The Carrs have canceled their vacation plans for this year, forgoing their usual spring and summer trips to Florida and North Carolina’s Outer Banks. Their RV remains idle in the backyard: It costs too much to fill it up.

In California, where average gas prices are the highest in the continental USA at $3.96 per gallon, San Francisco-based Personality Hotels just launched a Get Pumped package that includes a $10 gas card for each night’s stay. Such promotions, common during the gas crisis of 2008, could proliferate across the country this year as well, says Marti Mayne of the Professional Association of Innkeepers International.

California gas prices are a particular concern in Las Vegas, which draws nearly a third of its visitors from the Golden State and saw visitor spending plummet during the recession.

“We are becoming increasingly concerned about the rapid rise in the price of gasoline,” says John Restrepo, a Las Vegas-based economist.

“In the last 12 months, gas prices in Los Angeles have surged 28%, with a 15% jump in the last 30 days alone. And now the airlines are starting to raise ticket prices because of their rising fuel costs,” Restrepo says.

“When you combine that with an annual 2% rise in food prices, the highest since 2009, none of this is exactly good news for Las Vegas’ discretionary-spending-based economy, which finally appears to be stabilizing.”

Tourist traffic has been strong at South of the Border, the iconic Interstate 95 tourist attraction and watering hole at the borders of North and South Carolina, says spokeswoman Susanne Pelt.

“But it’s frightening to think what may happen if gas prices keep going up,” she adds. “We’re just kind of waiting and seeing.”


Japan Quake May Cut Global Auto Output by About 30%, Researcher IHS Says

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Parts shortages caused by Japan’s record earthquake may reduce global automobile production by about 30 percent, research firm IHS Automotive said today.

If parts plants affected by the quake don’t return to operation within six weeks, global auto output may drop as much as 100,000 vehicles a day, said Michael Robinet, vice president of Lexington, Massachusetts-based IHS. The industry produces 280,000 to 300,000 vehicles daily, he said.

“Most vehicle manufacturers will be affected by this,” Robinet said in a telephone interview. “It will be very difficult for any major automaker to escape this disaster.”

About 13 percent of global auto industry production is down right now and production of about 320,000 vehicles has been lost, mostly in Japan, Robinet said.

Auto executives have refrained from forecasting lost production as their managers seek other sources for parts. If solutions aren’t found soon, most major automakers will experience disruptions by mid-April because supply networks are intertwined, Robinet said.

Automakers and parts suppliers around the globe are girding for possible shortages of key parts, especially electronics and transmission components, Robinet said. If carmakers can’t find alternate sources of parts, or if plants don’t come on line in eight weeks, as much as 40 percent of daily production may be lost, he said.

Lost Production

The third week of April could mark the start of more severe production slowdowns, IHS said. The industry may lose 1.2 million to 1.8 million vehicles by then and almost 3 million units within eight weeks, with about half of the losses coming from assembly plants outside of Japan, according to an IHS presentation.

“We could lose up to 5 million vehicles in a worst-case scenario,” Robinet said. “This will affect income for the entire year if this continues for an extended period of time.”

While the earthquake is “disruptive,” automakers aren’t likely to lose as much production as IHS’s worst-case scenario, said Jeff Liker, a University of Michigan engineering professor who studies the industry.

“It’s not the majority of parts, but rather a small number of parts that are critical,” Liker said in an interview. “There may be a part that is three levels down — an electric circuit board or something — that is needed. They will figure that out and find alternative sources.”

Honda Closings

Honda Motor Co., which today extended closings at two car- assembly factories until April 3, is one of the most exposed carmakers, Robinet said. The automaker has 110 suppliers located in the earthquake zone, and about 10 of them can’t say precisely how long it will take for them to recover, said Ed Miller, a spokesman.

Toyota Motor Corp. (7203), the world’s largest automaker, has shut down all vehicle-assembly plants in Japan until at least March 26. The company said it will resume production of three hybrid models in Japan on March 28.

General Motors Co. (GM) has idled two compact-car plants in Europe and a pickup factory in Shreveport, Louisiana, because of parts shortages. GM sent electronics parts from Shreveport to a factory in Kansas City, Kansas, where it assembles the more- profitable Chevrolet Malibu and Buick LaCrosse sedans, said two people familiar with the matter.

GM executives sent out a memo on March 18 asking employees to limit travel and expenses to only essential business. The move was a precautionary measure, said Sherrie Childers Arb, a spokeswoman.

Ford Motor Co. (F) hasn’t had any disruptions yet, said Todd Nissen, a spokesman.

Automakers can make up for one week of lost production with about six weeks of overtime, Robinet said. Japanese carmakers may not be able to make up the lost output in 2011, he said.


Shopper Alert: Popular Japanese Car Prices Could Increase Soon!

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Following the recent tragic events in Japan, there is going to be a metaphorical aftershock affecting that country’s auto industry, which could send prices higher around the world. Companies like Honda, Nissan and Toyota will struggle to meet demand. Therefore the economic law of limited supply will make it more expensive. And this applies especially to the Toyota Prius hybrid.

Right now, Toyota describes its current Stateside inventory as “adequate” and has said that it is “making every effort to minimize any long-term impact on Prius availability.” This is coming at a time when gasoline prices are rising dramatically and more buyers are looking for fuel-efficient cars.

Although Toyota makes many of its North American-market vehicles in the United States using 70 percent of components from local sources, that still means 30 percent coming from elsewhere. A production line can be held up by the lack of one little part.

Toyota and other carmakers also use a “just in time” system, where parts are delivered on site at the precise moment they are needed. This relies on a finely synchronized ballet between suppliers, haulage contractors and workers at the best of times. For Japan, this is pretty much the worst of times, with vast sections of the country’s infrastructure disrupted, including rolling blackouts because of power shortages due to stricken nuclear reactors. And the Prius is made solely in Japan, along with Scion and Lexus vehicles.

Even if car factories are open, several of the many suppliers may be affected. Usually there are three facilities that supply battery packs for Toyota’s hybrid vehicles. One is closed at the moment. A Nissan engine plant is still experiencing aftershocks. Immediately after the March 11 quake, Toyota shut down operations. As did Honda, Mazda, Suzuki, Mitsubishi, Subaru, Nissan and the Bridgestone tire company. Most of them plan to re-open around March 22. In all, there are 49 models made solely in Japan including 15 Toyota/Lexus/Scion models like FJ Cruiser, 4Runner and Lexus LX570. Mazda’s Mazda3, 2 and 5 and the Miata MX5, Subaru’s Forester and Impreza, and Nissan’s 370Z, Murano, Juke and Leaf, and Honda’s CR-Z and Fit are also on the Japan-only list.

“What we don’t know is how dealers will react,” said Juan Flores, director of vehicle valuation at Kelley Blue Book. “They need a diverse inventory to bring customers in. There might be slight increases, but we don’t anticipate any significant upward pressure on prices for the next 30 days.”

That’s because some cars are still in U.S. ports, awaiting delivery to dealerships. And factor in those already en route, having left Japan before the quake and subsequent tsunami struck. Once this supply has gone, we will have to see how quickly it can be replenished. But if this situation persists and manufacturers cannot return to a normal production schedule “it’s safe to assume that transaction prices will increase,” said Flores. “The dealers will dictate when and by how much. The Prius will be the canary.”

However, Flores noted that the 2011 Prius and 2011 Honda Civic are both currently being offered with favorable lease deals. “These promotions might have been put in before March 11,” he said. But the message is clear: don’t waste time if you want to buy a hybrid or other fuel-efficient car. And this isn’t just limited to Japanese cars. Japan supplies 60 percent of the world’s silicon, the stuff that goes in microchips – which go in cars, computers, phones, and all sorts of other products made and sold around the world.