Rising Gas Prices Affect Discretionary Buying

The surging U.S. new car market could come to a screeching halt because of rising gas prices with a third of consumers restricting discretionary buying.

According to the monthly RBC Consumer Outlook Index, 32 percent of consumers have already reeled in their discretionary spending because of rising gas prices. That number would jump to 41 percent once gas hits $4 a gallon, which may not be all that far away, especially in Southern California.

Consumer confidence for March sank for a third straight month, with the RBC Consumer Outlook Index sliding to 42.5, down 2 points from February's 44.5. The March decline followed smaller decreases the two preceding months, as consumers were further affected by climbing fuel and food prices, instability in the Middle East and budget battles in Washington, D.C.

Savvy car dealers are going to jump on these factoids from the RBC Consumer Outlook: 93 percent expect to see higher oil and gasoline prices and 56 percent expect higher prices for automobiles. Any day now you should be seeing new car commercials that practically scream, "Just because you're paying more for gas, doesn’t mean you have to pay more your new car. Buy now before prices go up. Who wants higher gas payments and higher car payments? The fuel efficient XYZ helps you beat both."

One thing going for the car manufacturers is their white-hot focus on fuel efficient vehicles at a time of rising fuel prices (unlike in 2008 when they were caught flat-footed with an emphasis on SUVs and other gas guzzlers). They're still going to have to find a way to encourage discretionary spending (people who absolutely must buy a replacement vehicle will probably buy used) in light of rising gas prices.