Business & Real Estate

Tumbling gas prices curb costs for businesses and consumers, but will they boost sales?

Karl Engellenner loads flowers into a truck for delivery at Relles Florist in midtown Sacramento on  Nov. 20. Gas prices have fallen about a dollar a gallon since Independence Day, and the ripples of that have affected businesses, consumers and overall economics. Falling gas prices might be bad news for oil speculators, but Sacramento-area prices near $3 a gallon have been a plus for companies that have substantial fuel bills.
Karl Engellenner loads flowers into a truck for delivery at Relles Florist in midtown Sacramento on Nov. 20. Gas prices have fallen about a dollar a gallon since Independence Day, and the ripples of that have affected businesses, consumers and overall economics. Falling gas prices might be bad news for oil speculators, but Sacramento-area prices near $3 a gallon have been a plus for companies that have substantial fuel bills. rbenton@sacbee.com

Second-generation Sacramento florist Jim Relles has a passion for petals, but what really has him smiling lately is the plunging price of gasoline.

With gas tumbling below $3 a gallon this fall, Relles is spending considerably less to fuel his fleet of floral delivery trucks, which log hundreds of miles a week.

The unusual year-end plummet in at-the-pump costs also could spur more sales from his customers, who just might be inclined to spend more freely this year on holiday poinsettias and floral displays.

“Let’s just say that I’m really pleased that gas prices have fallen,” Relles said. “When it creeps back up to $4 or $4.25, that’s when it kills us.”

For business owners like Relles, lower gas prices are a potential bonanza.

“The ripple effect of falling gasoline prices is profound,” said Alfred Abernathy, a Bay Area energy analyst. “Rising prices get more headlines, but the effects of falling gasoline prices reach into millions of homes and businesses in California alone.”

For the owner of Relles Florist, a longtime fixture at 2400 J St. in midtown Sacramento, nose-diving gas prices have cut “thousands” of dollars off his monthly fuel costs since midsummer.

Relles says he seeks out the cheapest gas – typically at Arco stations – for his four delivery vans, each with a 50-gallon gas tank, and a smaller, 16-gallon vehicle. Back in July, he was paying slightly less than $4 a gallon. Now, he and his crews are shelling out roughly $1 less per gallon for fill-ups that typically exceed 200 gallons a week.

It’s a savings of roughly $1,000 a month, which puts more profit in Relles’ pocket and allows him to avoid raising his floral prices.

Plunging gas prices also have helped Miguel Ruiz of North Highlands. He oversees a three-person crew that provides yard maintenance services throughout the Sacramento area. Ruiz figures he’s paying about $500 less a month for gas now compared with midsummer. That includes savings on filling up two trucks and his gas-powered mowers and blowers.

“It make a difference. It allows me to take on another (employee), and we need it cleaning up all the leaves this time of year,” Ruiz said.

The recent dip in gas prices is a continuation of a trend that began in late July. Earlier this summer, as national gas prices started sinking lower, Californians were frustrated that gas prices here were locked in at more than $4 a gallon, despite analysts’ projections that they should be heading lower.

Over the July 4 weekend, national price tracker GasBuddy.com, which surveys more than 700 regional gas outlets daily, said the average retail price of gas in the Sacramento area rose about a penny to $4.02 a gallon. That was 20 cents higher than the year-ago price.

But two weeks later, the area’s average price had fallen about 8 cents to $3.94 a gallon, according to GasBuddy. As summer turned to fall, the slow retreat of prices turned into a stampede.

On Monday, GasBuddy reported that the average retail price of gas in the Sacramento area had fallen to $2.98 a gallon – 35 cents lower than last month, 46.8 cents below the year-ago price and the lowest level since Sept. 30, 2010.

“It has been a very unusual year,” said Patrick DeHaan, a GasBuddy senior petroleum analyst.

What’s going on? Energy analysts cite a perfect storm of factors continually pushing fuel costs lower.

For starters, crude oil currently is less than $80 a barrel, whereas it was sailing along at more than $100 a barrel a year ago. Refinery production nationwide has been consistently strong, with few interruptions due to fire, mechanical glitches and maintenance. Likewise, coastal refineries have not been blasted by a major hurricane.

Add to that a slumping U.S. demand for gasoline. That national trend has been true in California for years, as gas consumption has been flat or tepid at best – partly a byproduct of California motorists’ nation-leading use of hybrid and electric vehicles.

California prices also have fallen with the state’s recent switchover to cheaper fall-winter blends of gasoline.

What does it mean for consumers? In a mid-November report, GasBuddy estimated that nationwide “most of us have saved at least $500 since June.” In California, a big, highway-rich driving state, it’s likely more.

Added up nationwide, the gas savings are enormous.

“For every penny that the national average falls … more than $1 billion per year in additional consumer spending is estimated to be freed up,” according to AAA spokesman Michael Green, writing on AAA.com in late October.

Exactly where all that extra spending money will go is a source of debate among experts. Many analysts contend that it will be poured directly into the economy, a prospect that U.S. retailers are hoping for this holiday shopping season.

In a recent analysis, IHS Global Insight Chief U.S. Economist Doug Handler and Director of Consumer Markets Chris Christopher said that lower- and middle-income households, who generally spend a higher proportion of income on gasoline, “are likely to see significant relief from the fall in pump prices, especially during the holiday shopping season. In part because of this distribution, most of the windfall will be spent rather than saved or used to pare down debt.”

In an email, the Colorado-based analysts called the decline in energy prices “a net positive for the economy, accruing mostly to consumers.”

That impact is already showing up in consumers car sales, according to experts.

Jessica Caldwell, a senior analyst for Santa Monica-based auto information site Edmunds.com, says lower gas prices are helping the U.S. auto industry sell a wider range of vehicles, including less fuel-efficient sport-utility vehicles and pickup trucks, partly at the expense of high-mileage compacts such as the Honda Fit and Ford Focus.

The overall picture is positive for the auto industry, which could sell nearly 17 million new vehicles this year, she said.

“Everyone knows that truck and SUV sales benefit when gas prices fall. But lower gas prices are actually a tide that floats all ships,” Caldwell said. “When shoppers are paying less at the pump, they have more money in the bank to save up on big purchases. So, while gas prices certainly breathe extra life into the (Chevrolet) Tahoes and (Land Rover) Range Rovers of the world, the wealth effect is just as likely to motivate shoppers to pull the trigger on all vehicles big and small.”

Caldwell believes the flow of car shoppers “will likely remain steady through the end of the year. With declining gas prices and strong truck and SUV sales, the industry is poised for a very busy holiday season.”

Call The Bee’s Mark Glover, (916) 321-1184.

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