Isaac Could Spell Trouble for Gas Prices, Car Sales

- Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book

As tropical storm Isaac continues to barrel toward the Gulf Coast, we should brace for potentially higher gas prices and a decrease in new-vehicle sales. Any significant jump in gas prices could slow economic growth and cause many Americans to delay the purchase of big ticket items such as cars.

Gas prices jumped more than $0.50 per gallon in the wake of Hurricane Katrina in 2005 and new-vehicle sales declined by 18 percent month-over-month. While Isaac is not expected to approach the same devastation as Katrina, any level of incremental damage caused by the hurricane comes at a very sensitive time for the automotive industry. 

At $3.70 per gallon, gas prices are already at an all-time high for this time of year. If Isaac pushes the price of fuel to more than $4.00 per gallon nationally, the economy could be thrown into reverse. Any economic slowdown will be dependent on the severity and persistence of fuel-price increases. Depending on the damage done by this storm, a $1.00 per gallon jump that lasts for three months would be devastating to the economy, while a jump of a less than $0.10 per gallon would likely have little impact to the economy. 

In addition to a potential shock to gas prices, new-vehicle sales could take a hit if flooding and property damage prevent Gulf Coast residents from purchasing vehicles during typically strong Labor Day weekend sales events. Any vehicles damaged during the storm also would need to be repaired which could only stand to impede sales further. Although hurricane damage could slow vehicles sales in late August and early September, a significant jump in fuel prices remains of more concern.

In anticipation of the coming storm, 346 offshore oil and gas production platforms have been evacuated, halting production on 78 percent of the oil that typically flows out of the Gulf of Mexico. Undamaged oil platforms are expected to resume production immediately following the storm; however, if the damage surpasses expectations, a temporary shutdown of even a few weeks could send fuel prices soaring.