Auto Service World
Feature   December 1, 2000   by Jim Anderton

Why oil pricing matters

Unless you've been on the moon over the last year, you've noticed a change in this country. I'm not referring to the Federal election, but to something much more important to our industry: the price o...

Unless you’ve been on the moon over the last year, you’ve noticed a change in this country. I’m not referring to the Federal election, but to something much more important to our industry: the price of oil. World oil prices have been creeping up for some time, but the $US 30 a barrel level, and the resulting 75 plus cents per liter we’re paying at the pumps is a symptom of something brewing in the world’s economy. The automotive aftermarket will feel the effect as much as any sector in the Canadian economy, in the form of inflation. Inflation, right or wrong, has been an obsession on this continent since Ronald Reagan and Brian Mulroney, and the economic growth our government has labeled “prosperity” has been built around low, or no inflation. The trouble is, unless you’re in the Internet business, “if you got it, a truck brought it”, and fuel is a major proportion of the cost of shipping goods. Everything will cost more, and with margins at historic lows in most manufacturing industries, those costs will have to be passed on to consumers immediately. Could this cause an economic slowdown, or even the dreaded recession? It depends, not only on how much consumer’s disposable income is affected but also on how the markets take to reduced profitability among automakers, who’s bottom lines have been boosted mightily by the big, gas guzzling sport utility vehicles. On the repair side, thousands of SUV’s are coming off lease, and their popularity (and resale value) will be heavily dependent on the price of the fuel they burn. If fuel pricing stays high, higher mileage units may quickly become uneconomical to repair. The OEM’s are fighting back with new technologies such as hybrid power trains, in an effort to keep a three-ton truck in every driveway, but the existing late model fleet is almost half light trucks, while the average fleet age is something like nine years. The risk is simple: if oil prices stay high, there will be a shortage of clean, used economy cars, and a surplus of light trucks. If traditional used car buyers respond by jumping to new econoboxes on cheap lease programs, the repair sector will feel the impact, at least until the next purchase cycle. And the automotive aftermarket is just one of the economic sectors affected. Governments seem to be sleepwalking through this impending crisis, and are counting on “market forces” to stabilize prices. With the few oil producing nations in an oligopoly, if not a cartel, this policy is crazy. We do need price stability at the pumps, and if global markets can’t provide it, then governments should reduce fuel taxation, and take another look at competitiveness among the multinational oil companies. Banning the vertical integration of the oil business would be a good start, as the Ontario government has done in the electricity market. If it’s good for one energy sector, it should be good for the other. If nothing else, the ability to source fuels from truly independent refiners and wholesalers might make fuel retailing a viable business again. Either way, our economy needs to pick an oil price, and stick to it. But is anybody listening?

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