The Midwestern sun reflected off acres of sparkling recreational vehicles parked in South Bend, Ind., half a world away yet not that far from the brooding thunderheads of war in the Middle East and the fumes of soaring petroleum prices.
”There`s a lot of numbness around here,” said Rick Rouse, president of TL Enterprises of Agoura, Calif., which publishes an array of trade magazines for the RV industry. The RV manufacturers were gathered in South Bend for the annual Midwest Manufactured Housing and Recreational Vehicle Show, where dealers were placing orders for 1991 models of gas-hungry motor coaches.
But while the setting for the show was the burnished golden dome of the University of Notre Dame campus, the psychic backdrop was the spreading concern over how the Iraqi invasion of Kuwait is digging deeper into America`s economic lifeblood.
Last week`s fluctuations in oil prices, which quickly affected transportation costs, are likely to eventually result in higher prices for countless goods produced with petro- chemicals, from textiles to disposable razors, from fertilizer to condoms.
Petroleum helps clothe, shelter, transport and amuse Americans. From it are made rugs and sofas, knobs and curtains, paint and pipe. Women need it for panty hose, men for shaving cream, kids for crayons, balloons and inflatable toys. Manufacturers use it to make shoe polish, ball point pens, guitar strings, ink, cigarette filters, toilet seats and golf balls.
It`s a key element in things that make people look, feel and smell better: aspirin, perfume, rubbing alcohol, contact lenses, toothpaste, antiseptics, cortisone, antihistamines, petroleum jelly, dentures, vitamin capsules, nail polish and deodorant.
It even is used in helping the country become energy efficient. Since plastic is a replacement for steel, it makes cars lighter. Since plastic dominates the American style of consumption, the price of oil ultimately will seep into the price of thousands of goods.
Dick Parry, vice president of public relations at Dow Brands, a division of Dow Chemical Co. in Indianapolis, said consumers are likely to see prices rise by a few pennies on Saran Wrap and Handiwrap, plastic food wraps containing petroleum-based polyethylene, although he predicted it would take up to six months before the increases will be registered at groceries.
”When the price of oil goes up, the price of everything goes up,” he said. The amount of petroleum in the product may be minuscule, but fuel prices will also affect the cost of manufacturing and distribution, he said.
Chuck Ebeling, a spokesman for Oak Brook-based McDonald`s Corp., which uses polystyrene packaging in its fast-food restaurants, said he so far was unaware of any effect on the restaurateur from rising fuel prices.
And at Baxter International Inc. in Deerfield, spokesman Les Jacobson predicted that the cost of manufacturing plastic medical supplies won`t increase markedly.
More Top Picks Best Large Air Fryers For Families
”We buy on contract, not on the spot market, so while that may not assure us of low prices for long, it assures quantity and secure sources of petroleum,” he said. The company, which has 90 distribution centers and a fleet of 400 trucks, will be more affected by pump prices than by crude oil costs, he said.
In addition to sharply higher prices at gasoline stations around the country, truck transporters have already requested surcharges on freight shipments of food and other retail items, and there has been a near-industrywide boost in fares for airline travel.
The oil price increase also has sent shock waves through stock markets around the world, reducing the value of pension and profit-sharing plans for millions of American workers and investors.
Economists also warned that higher energy prices are certain to fuel an inflationary trend, because energy accounts for 7 percent of the consumer price index.
”The direct impact on gas prices will be felt immediately at the pump,” noted Michael Drury, senior economist at Boston Company Economic Advisers.
”The effect won`t filter through the consumer price index for four to six months, and then it may take up to 10 months for consumers to see the final impact on labor costs, rents, medical-care costs and everything else that`s vaguely linked to oil. It`s going to be painful for the overall economy.”
Officials for the country`s automakers, however, note that they have locked into long-term contracts-many of them 12 to 18 months-on parts and components such as tires and plastics, and insist that the Middle East crisis should have no immediate effect on prices.
Moreover, General Motors Corp. said the company has no plans to revise its sales projections or production schedules in response to the oil price hike, but will monitor the situation for a few weeks.
Nevertheless, the added energy expense already has prompted David Seiders, chief economist for the National Association of Home Builders, to lower his forecast for single-family and multi-family housing starts this year to 1.24 million, down 40,000 from the group`s last forecast in May and down sharply from the projection of 1.42 million units made at the beginning of the year.
”It has provoked an immediate increase in interest rates, which is always bad for housing,” Seiders said. ”We had been anticipating that interest rates would continue to improve. We expect the downward trend to re- emerge, but on the average, rates will be higher than we thought.”
In addition, an energy price increase will mean less discretionary income for consumers, affecting household decisions on big-ticket purchases.
Seiders estimated that housing construction costs ultimately would go up 1 to 1.5 percent if there is a 50 percent increase in oil prices, with slightly greater hikes if substitute energy sources such as electricity and natural gas become more expensive.
He added, however, that the impact likely won`t be seen in housing prices until next year, if at all. With new-home demand soft in most areas of the country, it will be hard for builders to increase prices even if their costs increase, he said.
The construction material most directly affected is asphalt for roofing and paving, Seiders said. Lesser effects will be seen in materials that use plastics and synthetics that involve petroleum in their manufacture, he said. Increased gas prices have fueled renewed uncertainty in the already lagging recreational vehicle industry. Sales slumped last year and have been languishing this year after achieving record levels in 1988.
The U.S. recreational vehicle business, which was hard hit during the widespread gasoline shortages in the 1973 oil embargo, is especially vulnerable to the impact of political instability in the Middle East.
The vehicles, many of them with luxurious appointments, can cost more than $250,000, and petroleum-based plastics are widely used in construction. The larger models, typically equipped with a 60-gallon fuel tank, eke out an average of 7 miles per gallon, which represents an improvement in fuel efficiency from a generation ago.
The guarded optimists strolling through the RV show contended that motor coach manufacturers won`t be damaged dramatically by the high cost of fuel, in part because their market consists largely of retirees who, on average, drive their recreational vehicles only about 4,500 miles a year.
”We`re all in an economy based on oil,” noted Larry Lebryk, an assistant vice president of sales promotions for Coachman Recreational Vehicle Co. of Middlebury, Ind. ”And while the price of oil is critical, what`s even more critical is the availability of oil.”
Matthew S. Czoch, publisher of RV Trade Digest in Elkhart, Ind., expressed optimism that the industry would ride out the crisis.
”You`re dealing with a discretionary dollar item in this business, and a hike in oil prices sends shudders through the spine of this industry,” he observed. ”But I`ve seen adversity come to us before, and then I`ve experienced the resiliency. The American people are nomadic by nature, and as long as they have wanderlust, we have a market.”