Business Update with Mark Lacter

Rising gas prices; electric cars

KPCC business analyst Mark Lacter talks about climbing gas prices; he also talks about electric cars.

Susanne Whatley: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, gas prices have been inching up lately - are they a big drag on the economy?

Mark Lacter: It all depends on how high the prices go and at what stage of the recovery we're in, Susanne. At last check the average price in the L.A. area was running just under $3.35 a gallon, give or take, (that's according to the government's weekly survey). And that's a 35-cent-a-gallon jump since the beginning of October. (Figure an extra five or six bucks per fill up - and it’ll probably go higher once the refineries switch over to the summertime blend of gasoline). But $3.35 is still quite a ways off from those crazy-high prices we saw during the summer of 2008, when a single gallon of regular was around $4.60. You know, gas prices are funny - a little like the weather: Everyone grouses about them, but nobody does much about them, at least in the short term.

Whatley: Especially in Southern California.

Lacter: Well, yes – the distances between work and home can be quite long and also mass transit still makes up a small part of the daily commute. So yes, people will keep buying gas - the question is whether they'll stop buying other stuff, and to what extent. That's a very big deal because the strength of the economic recovery is predicated on an increase in spending by the consumer.

Whatley: How much is too much for gasoline?

Lacter: No one really knows the point at which people start to put the brakes on spending - some say it's four dollars a gallon, some say five, some say eight or 10. What we do know is that cars have become way more fuel efficient than they were 10 and 20 years ago - even the non-hybrid ones. You’re seeing examples at the Detroit Auto Show this week, with the Chevy Cruse, Ford Fiesta, and a bunch of others (that's quite a change from 2008 when the car makers were stuck with those gas-guzzling SUVs that no one wanted). When folks are able spend less on gas, prices are more likely to be held in check.

Whatley: Whatever happened to L.A. becoming the capital of electric cars?

Lacter: Well, nothing happened, not much anyway – and that's the problem. A couple of the upstart companies that thought about setting up their manufacturing operations here decided to go elsewhere. The city of L.A. was able to convince the Chinese electric car maker BYD to open its North American headquarters just south of downtown, and the company is still looking at locations for a new plant. Both L.A. and the city of Lancaster are hoping to get that business, but it's just very hard to establish manufacturing operations in Southern California, even when they involve green technology. Keep in mind that the area started to see its auto plants disappear in the 70s and 80s - the GM factory in Van Nuys was the last to close down in 1992. And that's why there was such excitement about trying to attract these new electric car companies. The key to establishing a real electric car industry in L.A. is to have more than one company - you need several of them, along with related suppliers and distributors, and that's not likely to happen.

Whatley: I suppose a lot depends on whether people will be interested in electric cars...

Lacter: That’s right – and so far it’s not a sure thing, at least in the beginning. Kelley Blue Book just did a survey of U.S. car buyers and found that despite all the hoopla about electric cars, just 7 percent of the sample said they would consider buying one for their next purchase. Most folks still have concerns about how far they could go on a single charge and also the availability of charging stations. And they're not especially cheap, which means that gas prices will have to go up quite a bit further before consumers really start paying attention - no matter where they build the things.

Whatley: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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