MONEY Gas

Surprise: Gas Costs Less Than it Did a Decade Ago

The price of regular gasoline dropped to $2.659 per gallon at the Hi Tech Fuels station on Brainerd Road and other stations in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014.
The price of regular gasoline dropped to $2.659 per gallon in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014. John Rawlston—AP

But you may still feel like you're paying more. Here's why.

Gas prices have been plunging lately. For consumers, that’s great! It’s more money in your pocket.

Gas now averages $3.07 a gallon nationwide, down from $3.60 in June and $3.30 a year ago. That’s billions of dollars of savings for U.S. households.

But gasoline is one of the few products whose prices we vividly remember. Behavioral economist Daniel Ariely once explained:

For the several minutes that I stand at the pump, all I do is stare at the growing total on the meter — there is nothing else to do. I have time to remember how much it cost a year ago, two years ago, and even six years ago.

Gas may be cheaper today than it was a year or two ago, but I’ve heard several people recently say, “Sure, but I remember when it was $1.50 a gallon!” That nostalgia makes us think we’re still paying a fortune at the pump.

But several other things have changed lately that affect the real price of gasoline:

  • The average car has a much better fuel economy today than it used to.
  • The average American is driving less than they used to.
  • Average nominal wages are higher today than they used to be.

You have to adjust for all three improvements to show the true price of gas, and the real impact it has on our wallets.

When you do, the real price of gas is lower today than it was a decade ago, and about the same as it was in the early 1990s:

Source: Department of Transportation, Energy Information Agency, Bureau of Labor Statistics. The formula used to calculate this graph is: (average gas prices/average hourly wages of nonsupervisory workers) * (annual miles driven per capita/average MPG of passenger cars).

One of the most important forces in economics is that people adapt. And that’s what you’re seeing here.

Gas prices surged in the early 2000s, so auto companies started building more fuel-efficient cars, which consumers demanded (as did new regulations).

Fuel-efficient cars used to be dinky little toys that you’d be embarrassed to drive. That’s changing. GM GENERAL MOTORS CO. GM 4.2407% CEO Mary Barra commented last month: “The customer has that expectation. It’s not an ‘or’, it’s an ‘and.’ They’re expecting to have winning vehicles, but also to have the fuel efficiency. It becomes a business priority.”

Consider: A 1999 Chevy Suburban got 18 miles per gallon and had 290 horsepower. A 2015 Suburban gets 23 miles per gallon with 355 horsepower.

High gas prices also likely played a role in pushing families from the suburbs into the cities, where commutes are shorter. As Reuters reports: “In 2010, a total of 80.7 percent of Americans lived in urban areas, up from 79 percent in 2000. Conversely, 19.3 percent of the U.S. population lived in rural areas in 2010, down from 21 percent in 2000.”

I’m not a fan of forecasts, because they’re pretty much all wrong. But here goes: Over the next 20 years we’ll see moderately higher gas prices combined with much better fuel economy. Taken together, this chart — with all its adjustments — won’t look too much different two decades from now than it does today.

“Intelligence is the ability to adapt to change,” Stephen Hawking said. And we are.

For more on this topic:

Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends General Motors, and has a disclosure policy.

MONEY Gas

Last Time Gas Prices Were This Cheap, It Was January 2011

The price of regular gasoline dropped to $2.659 per gallon at the Hi Tech Fuels station on Brainerd Road and other stations in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014.
The price of regular gasoline dropped to $2.659 per gallon in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014. John Rawlston—AP

Average prices at the pump have dropped roughly 10¢ in one week, and drivers in no fewer than 17 states are already paying less than $3 per gallon.

The analysts forecast that $3 gas was in our nation’s future, and indeed, according to AAA data, the average price for a gallon of regular is currently under the $3 mark in 17 states. The gas price tracking app GasBuddy reports that 46% of gas stations around the country are now charging less than $3 per gallon, compared with just 3% one year ago.

Nationally, the average has fallen by roughly a dime over the course of a quick seven days, landing just under $3.09 as of Wednesday. That’s about 25¢ cheaper than what drivers were paying for gas both one month and one year ago, and 60¢ less than prices in spring and early summer 2014. The cost of filling up has been positively plummeting for drivers in states such as Kentucky and Indiana, where gas stations lowered prices an average of 17¢ and 16¢, respectively, during a recent seven-day span.

Overall, the current $3.086 national average is the lowest the country has seen since early January 2011, when it was measured at $3.07. Could prices go even lower? Sure. In fact, that’s more or less what’s expected.

Earlier this fall, experts had predicted the national average would “perhaps” hit $3.10 or $3.15 by year’s end. What this means is that prices have dipped more quickly and sharply than most analysts ever anticipated—thanks to weak demand, increased global production, and the strengthening U.S. dollar, among other forces. Now experts such as GasBuddy’s Patrick DeHaan are projecting that the national average “will break the $3/gallon mark by around Election Day.”

The last time we were under the $3 mark as a country was December 2010. What’s interesting is that people weren’t particularly happy about gas prices at the time—because the average had been roughly 40¢ cheaper one year prior to that. Everything is relative.

MONEY Autos

The Price of Hybrid and Electric Cars Is Plummeting. Here’s Why

2012 Toyota Prius
Toyota Prius David Dewhurst

Among the trickle-down effects of cheaper gas prices are lower sales totals for alternative-fuel cars—which in turn have forced automakers to slash prices on these vehicles.

USA Today just reported that Ford is cutting the sticker price of the fully battery-powered plug-in Focus Electric by a flat $6,000. That’s on top of a $4,000 price reduction on the same vehicle a year ago. The new sticker price is $29,995 including shipping—but not including federal tax credits of up to $7,500 and state incentives that might effectively knock another $2,500 off the amount buyers pay.

Obviously, Ford wouldn’t be instituting such dramatic price cuts if the Focus Electric was selling well, and part of the reason sales have been poor is that the model doesn’t stand out in an increasingly crowded field of midlevel-priced plug-ins where the Nissan Leaf, the pioneer in the category, remains the indisputable leader. Another reason for underwhelming sales of the Focus Electric—and for many alternative-fuel cars in general, for that matter—is simply that gas prices have been getting cheaper and cheaper.

According to the AAA Fuel Gauge Report, the national average for a gallon of regular was just under $3.10 on Tuesday, compared with $3.35 a year ago and around $3.70 this past spring. Gas prices for the year as a whole are down slightly compared with 2013, and projections call for continued lower prices in 2015. All of which hurts automakers’ efforts to convince buyers that it’s a savvy move to pay a premium over a standard gas-powered vehicle for a hybrid or electric car right now, with the anticipation that they’d more than make up the difference later on in the form of savings on gas.

To help sales, automakers have been trying mightily to make the difference in price between alternative-fuel cars and their traditional car counterparts disappear. Nissan slashed the price of the Leaf in early 2013, effectively bringing the takeaway price of the vehicle under the $20,000 mark. Leaf sales have been strong throughout 2014, up 23% year over year thus far. Ford Focus Electric sales are up in the U.S. as well, with September units sold up 60% compared with the same month last year. Even so, we’re talking about extremely small numbers: 176 Focus Electrics sold last month, versus only 110 for September 2013.

What’s especially noteworthy is that the combination of lower gas prices and increasingly fuel-efficient internal-combustion engine cars appears to be putting the squeeze in particular on hybrid cars like the Toyota Prius. According to Toyota data, 14,277 Priuses were sold in the U.S. last month, compared with 15,890 for September 2013. For the year thus far, Prius sales are down 11.4% compared with the same period a year ago—and mind you, this slump took place a time when Toyota sales overall are up 5.7%. By far the worst-performing Prius has been the plug-in PHV; only 353 sold in September, a decline of 71% versus the same month a year ago (1,152). As for hybrid sales overall, a total of 31,385 units sold in the U.S. in September 2014, a decrease of 35% from the previous month, and a decline of 6.5% from the same month in 2013.

Bear in mind that the hybrid sales slump has occurred while automakers have gotten more aggressive with discounts. As Automotive News lately noted about the struggles of alternative-fuel cars:

Data from KBB.com show that Toyota boosted Prius incentives to $2,300 per vehicle in September from $1,400 a year ago while Ford ramped up C-Max spiffs to $4,900 from $2,650 per vehicle in the same period; neither move helped sales.

So cheaper gas prices benefit drivers not only in terms of the obvious—cheaper gas prices—but also because they’re forcing automakers to slash prices on hybrids and electric cars that boast savings on gas as a primary sales pitch.

MONEY Autos

Traffic Costs You Even More Than You Think—and It’s Getting Worse

141015_EM_TRAFFIC_1
JAMIE RECTOR/GETTY

Congestion on the roads costs us a fortune, and a new study forecasts that the price we pay for traffic will rise 50% by 2030.

A new study from the London-based Centre for Economics and Business Research aims to put a price on traffic—now, and in the near future. After crunching the numbers and factoring in projected population growth and rising living standards, as well as costs associated with road congestion such as wasted fuel, decreased productivity, and higher prices for goods as a result of higher transportation costs, the researchers estimate that the combined annual price of traffic in the U.S. and Europe will soar to $293 billion by 2030, a rise of nearly 50% from 2013.

For what it’s worth, drivers in the U.S. get off easy compared with motorists in Europe. By 2030, the average American household is expected to incur traffic-related costs of $2,301 per year. That’s a 33% increase compared with 2013, but it’s still much lower than annual congestion costs for drivers in Germany ($2,927), France ($3,163), and the U.K. ($3,217).

At the same time, however, the U.S. has bragging rights for being home to the city where the costs of traffic are highest. No surprise which city has that dubious distinction: It’s Los Angeles, which of all the cities in the study has the most autos (4.5 million) and the highest percentage of workers who commute by car (67%), and where the annual costs of road congestion per household are projected to reach $8,555 by 2030, a 49% increase from 2013. (London is a distant #2 in the category, with traffic costs per household forecast to be $6,259 by 2030.)

A separate line of research estimates how much traffic costs not merely individual households, but the nation as a whole. The U.K. is facing the sharpest spike, with a 66% increase by 2030, but even then the total would come to only $33 billion, a pittance compared with the much larger, more car-crazed U.S. In this category, the USA is #1, with the economic impact of road congestion forecast to reach $186 billion for the nation as a whole by 2030, a 50% increase over 2013.

What can we do about any of this information—besides saying, “That sucks,” and perhaps moving out of L.A. as soon as possible? Among other things, researchers call for improved public transportation options and more of them, to help ease traffic by getting more drivers off the roads.

MONEY Gas

Gas Prices Just Hit a Low for 2014

Gas Cans
Get it while it's cheap! NoDerog—Getty Images

Around the country, drivers are paying the lowest prices of the year for gas.

The summertime swoon for gas prices has continued into fall, and now it looks like the forecasts calling for lower and lower prices at the pump are right on track.

Earlier this week, AAA noted that the national average for a gallon of regular stood at $3.29 and that we were on the brink of matching the cheapest mark thus far in 2014 ($3.27, hit on February 9). Well, as of Wednesday, AAA data indicated the national average hit $3.267, a new low for the year.

What’s more, drivers in many states are paying well below the national average. The price of regular is averaging $3.10 or less in Alabama, Arkansas, Kansas, Minnesota, Mississippi, New Jersey, Oklahoma, South Carolina, Tennessee, and Virginia, and Missouri is cheapest of all, recently dipping just under $3 per gallon—the first state to average under $3 since January. Drivers in many metropolitan areas, including Kansas City, Duluth, Minn., Tulsa, Okla., and Iowa’s Quad City area, have been enjoying sub-$3 gas this week. The gas price-tracking site GasBuddy is also reporting that gas stations in no fewer than 18 states currently have prices that are the lowest they’ve been for all of 2014.

Best of all for drivers hoping to spend less on fill-ups, all signs indicate the trend for cheaper and cheaper gas will keep on rolling in the months ahead. AAA is predicting that the national average will dip to $3.20, perhaps even $3.10, by the end of the year, by which time as many as 20 states could see per-gallon prices drop below $3.

MONEY Gas

Watch: Gas Prices Are Falling…Toward $3 a Gallon

Prices at the pump are dropping, and some forecasts have a gallon of gas heading toward $3 a gallon.

MONEY Gas

$3 Per Gallon Gas, Here We Come

Gas prices
MCCAIG—Getty Images

After peaking around $3.70 per gallon in June, gas prices dropped steadily for two months—and they're expected to keep declining for months to come.

Throughout the U.S., prices at the pump took the unusual step of declining steadily during the summer, resulting in the cheapest Labor Day gas prices in years. Now that we’ve reached summer’s end, which traditionally brings on cheaper gas prices, the downward trend on fuel costs is expected to keep on rolling.

Gas prices are hardly plummeting. As of Friday, the national average for a gallon of regular stood at $3.41, just a couple of pennies less than it was a week ago. But a year ago at this time, the average was $3.55 per gallon, and as recently as June 2014, it was $3.70. As AAA pointed out this week, drivers in several parts of the country are paying significantly less for gas than they were in early September 2013: Prices in Iowa, Kansas, Minnesota, and Nebraska are now 28¢ to 33¢ cheaper per gallon compared to a year ago.

Most importantly of all, the decline in prices is expected to stay on track well into the fall and early winter, largely because demand is down due to the end of summer, and because refineries switch to producing cheaper winter-blend gasoline starting in September. At the same time, the U.S. gasoline supply is up 1% compared to last year. So, barring any troubles with refinery production or geopolitics, the anticipation is that it will slowly but surely get cheaper and cheaper to fill up at the pump.

How cheap? “I’m expecting the national average to drop to $3.15 by Halloween, and $3 a gallon as a national average is certainly in the cards,” Andy Lipow, president of consulting firm Lipow Oil Associates, told the Wall Street Journal.

The averages in Alabama, Arkansas, Louisiana, Missouri, Mississippi, South Carolina, Tennessee, and Virginia are already under $3.20 per gallon. “Some states could see a monthly average pump price below $3 a gallon at the end of the year,” Adam Sieminski, head of the Energy Information Administration, said in a statement this week.

Prices under $3 per gallon have already begun popping up at gas stations in cities such as Baton Rouge. And drivers in metropolitan areas like Kansas City think they could be next to enjoy prices under the $3 mark.

MONEY Autos

Why Hybrid and Electric Cars Have Lost Their Spark

2015 Nissan LEAF
To entice buyers to purchase a Leaf, Nissan launched a free charging promotion this past spring, promising new owners access to public charging stations at no cost for two years. Nissan—Wieck

The Nissan Leaf, Chevy Volt, Toyota Prius, BMW i3, and other electrified cars were projected to take over an ever-increasing chunk of the auto market. Only sales have gone flat in 2014. What happened?

At first glance, the electric car market appears to be pretty darn electrified. Tesla just chose Nevada as the site for its $5 billion “gigafactory” to produce batteries needed for EVs, and Tesla shares hit an all-time high this week after the company was praised by analysts. What’s more, Nissan reported that August was the best ever month for sales of its plug-in Leaf, with 3,186 units sold. Sales of BMW’s new plug-in, the i3 were also strong in August—1,025 sold, which just about matches the total of the previous three months combined.

At the same time, however, the overall electrified car market appears to be flat, even in a bit of a slump. Auto sales are booming in general through 2014, and last month reached the highest sales pace since before the Great Recession. Yet hybrids and fully electrified plug-ins haven’t kept pace with the rest of the field. “The whole automobile market has grown,” Edmunds.com analyst Jessica Caldwell explained to the Los Angeles Times. “We’re not seeing electric vehicles as part of that growth.”

According to Edmunds data, through August 2014 hybrids and electric vehicles captured 3.6% of all auto sales this year. For the same period a year ago, hybrid and EV sales represented 3.7% of the overall market. That wouldn’t seem like a big deal except for the fact that for years analysts have been forecasting that hybrid and EV sales would rise steadily, more or less indefinitely—reaching 7% of global auto sales by around 2020.

How can all of this be explained? First off, the increase in sales of the Nissan Leaf is mostly an anomaly. Nissan launched a free charging promotion this past spring, promising new buyers access to public charging stations at no cost for two years as an incentive for the purchase of a Leaf. Local subsidies in states such as Georgia, which provides a $4,000 tax credit for EV purchases and boasts inexpensive electricity to boot, have helped juice sales. (Federal tax credits for plug-in purchases amounting to up to $7,500 off are still around as well.)

Even in Atlanta, however, which has become the #2 urban market for electric cars (after San Francisco), EVs account for only 2.15% of new car registrations. Nationally, EVs constitute only 0.38% of new car registrations. Hybrid vehicles, which are more practical because they run on gas as well as battery power, have regularly sold in far higher numbers than pure electric-powered plug-ins. And sales of many hybrids and non-Leaf EVs aren’t faring well in 2014. MarketWatch reported that through August, sales of the Chevy Volt, Toyota’s plug-in and hybrid Prius, and Honda’s lineup of hybrids and plug-ins were all down at least 10% compared to the same period in 2013. Tesla doesn’t provide sales data, but according to estimates from InsideEVs.com, sales of the Model S totaled approximately 500 and 600 in July and August, respectively, after hitting 1,000 or more monthly from February to June.

What’s been holding sales of hybrid and electric cars back? Reasonably flat, reasonably inexpensive gas prices have certainly played a role. A survey from a couple of years ago indicated that the majority of Americans wouldn’t alter their lifestyles until gas hit $5 per gallon. Not only are we still far off the $5 mark, but prices at the pump have actually been on the decline, recently dipping to the lowest Labor Day gas prices in years.

Edmunds.com’s Caldwell also told MarketWatch that sales of EVs and hybrids may be down because they’re no longer new and novel in the marketplace, and the fascination with owning one is quickly diminishing. “Stable gas prices have a lot to do with it, but there’s also a possibility that the prestige of owning an electric vehicle or hybrid has died down,” she said. “This year may not be able to top last year, which is kind of sad given how well the overall market is performing.”

With the novelty of owning an electrified vehicle disappearing, consumers are left considering the issue as a purer matter of dollars and cents. Hybrids and EVs generally have higher sticker prices than their gas-powered counterparts, so the hurdle electrified cars must clear is convincing drivers that they’re worth the extra money. Lower gas prices obviously mean lower potential cost savings from owning a car that runs on electricity, so the state of gas prices is a strike against EV sales. Traditional gas-powered vehicles have made great strides increasing their fuel economy, which again hurts the argument for opting for an electric-powered car for the purpose of saving money.

Even the improvement in the economy seems to be hurting sales of EVs and hybrids. As the Associated Press noted, consumer demand for SUVs and crossovers has been particularly strong, at least partly because buyers have felt comfortable enough financially to afford larger, pricier vehicles. (The rise in subprime car loans is surely a factor too.) Because so many drivers are interested in SUVs, automakers and car dealerships have felt forced to offer larger-than-usual discounts and incentives on compact and midsize vehicles to convince customers to bite.

And when a gas-powered compact with excellent mileage and no need to ever worry about running out of battery power or finding a recharging station is available at an especially cheap walk-away price, that’s one more reason that many consumer are finding that the math isn’t adding up for the purchase of an electric car.

MONEY Gas

Labor Day Gas Prices Are Cheapest in Years

friends consulting a map while sitting on the back of a car
Cavan Images—Getty Images

Gas prices usually drop in the fall. This year, prices at the pump began falling in early summer and kept on heading down, resulting in the cheapest holiday weekend for gas since 2010.

Earlier this month, an Edmunds survey indicated that as many as three-fourths of all Americans were likely to take a road trip before Labor Day weekend marked the unofficial end of summer. According to AAA, nearly 35 million Americans will be heading at least 50 miles away from home over the holiday weekend, and 86% of travelers will be embarking on their journey by car.

This means that roads are likely to be jammed over Labor Day. There is some good news for those stuck in traffic, however. It’s been years since gas has been this cheap over Labor Day weekend. “AAA expects gas prices to have little impact on the number of people traveling for Labor Day, though lower prices could help make travel more affordable,” a statement from automobile association explained.

Gas prices dropped steadily throughout July, with the national average hitting $3.52 at the end of the month. As of Thursday, a gallon of regular gasoline was averaging $3.43 around the country. That’s about 13¢ cheaper than prices were a year ago at this time. In fact, the last time that gas was priced this low leading into Labor Day weekend, it was 2010. Gas prices spiked to around $3.75 for Labor Day 2012, for instance.

Even though gas prices are cheaper, that doesn’t really mean they’re truly cheap. As recently as the fall of 2008, the national average stood at around $2 per gallon, thanks to a falloff in demand due to the economic crisis. In any event, drivers should always be taking advantage of easy ways to save on gas. Two no-hassle strategies to consider: credit cards with 5% cash back on gas purchases, and Walmart’s Rollbacks on Gas program. The latter involves using various Walmart-branded cards (prepaid debit, gift cards, plain old credit cards) to pay for gas, with savings ranging from a flat $25 off to 15¢ off per gallon. These options can save you money at the pump this weekend, but the clock is ticking on both. Walmart’s gas savings program ends September 8, and most credit cards only pay 5% cash back on gas through the end of September.

TIME Innovation

Five Best Ideas of the Day: August 25

1. Slavery’s long shadow is inextricably linked to modern income inequality in the south.

By Stephen Mihm in the Boston Globe

2. Superdistricts in the House of Representatives could end the tyranny of incumbency in Congress.

By Katrina vanden Heuvel in the Washington Post

3. Yelp the Police: Georgia teens build an app to rate law enforcement interactions.

By Rebecca Borison in Business Insider

4. The new Egyptian government’s policies of repression and exclusion could push citizens into the arms of extremist groups.

By Michele Dunn and Scott Williamson at the Carnegie Endowment for International Peace.

5. Transforming oil and gas rigs into artificial reefs could save the delicate ecosystems formed around the structures.

By Amber Jackson in Huffington Post

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser