As Gas Prices Rise, So Do Demands On Employers

Manufacturer Bill Lathem knew that higher gas prices would affect his business--he just didn't expect to have to shut it down one day a week.

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Bill Lathem's family has run Lathem Time, an Atlanta manufacturer of time clocks, since 1919, and it's the kind of company where workers stay for decades. "That family feeling around here is what keeps our tenure up," says Lathem, who employs 150 workers, "and a lot of the skills that these guys have are not easily trained."

So when his human resources director began to field a series of complaints about commuting costs, Lathem listened. What he heard was troubling. Nila Rose, an inventory-control manager who's been working at Lathem for 20 years and has a 30-mile commute, had seen her gas bill rise from $25 a week to $60 a week. And hers is one of the reasonable commutes: Lathem's secretary, who assisted his father and grandfather before him, drives 78 miles to work each way from the Georgia mountains. Another factory worker drives 58 miles each way from Alabama. "I had several employees mention to me that they were using one week's paycheck per month to get to work," says Grace Perry, Lathem Time's HR director.

As gas approached $3 a gallon in Atlanta last fall, Lathem responded--and in a pretty radical way. Today two white vans rented by the company bring 22 employees to work each day. About 30 additional employees are carpooling in their own vehicles, and a third of the office staff telecommutes at least one day a week.

The most stark difference, however, can be seen on Fridays, when most machines in Lathem's 115,000-square-foot factory stand idle and plant workers have the day (and the commute) off. Lathem was apprehensive about making these moves, and he's not sure they'll last. But he felt he had to act before high prices at the pump persuaded some workers to look for new jobs closer to their homes.

Commuting From the Exurbs in an SUV

When energy costs spike, businesses face a host of problems. It costs more to run a factory, more to ship, more to keep the lights on and the servers humming. The effects can be particularly severe for small companies, which often have less leverage with vendors and worry more about passing along higher costs to customers.

Then there's the tension that high energy costs can create between a company and its workers, which is often overlooked. Because real wages have remained flat for years, commuting costs are rising at a time when workers have less disposable income to spend at the pump. The consumer-price index took an unexpectedly big jump in May, raising concerns about inflation.

Social trends are making the problems worse. In many major metropolitan areas, workers are moving to the fast-growing exurbs that lie beyond what were once considered the suburban fringes. The average commute is almost 25 minutes, according to the Census Bureau, and 78 percent of Americans are alone during their drive to work. Nor are they giving up their SUVs. In the first quarter of 2006, even as gas prices have shot up, vehicles with six- and eight-cylinder engines have accounted for about two-thirds of new-car sales, according to J.D. Power & Associates.

Where We Are, Where We're Headed

Energy prices will likely remain high for the next couple of years. At this point, the reasons are well known. Most producers are processing at capacity, and not all U.S. producers have recovered from Hurricane Katrina. China, India, and the U.S. continue to consume more energy. Instability in oil-rich Nigeria and Iraq, and global tension regarding Iran, complicate matters.

Every one of my suppliers is putting a surcharge on delivery of product to us. I can't see any way we can avoid a price hike. " --Arthur Pascuzzi, Milwaukee Crane

Alternative energy may add a little to the supply over the next year or two, but not a lot. The one bright spot is that the oil companies will reinvest some of their lush profits in new exploration projects, but this won't result in an increase in supply for a while.

Adjusting to higher prices, many suppliers and transporters are adding surcharges. Most small businesses, however, are reluctant to raise prices for their customers; fewer than a third of them have done so, according to a survey released by American Express Open in May.

Arthur Pascuzzi, the CEO of Milwaukee Crane, based in Tigard, Oregon, is caught in this bind. "Every one of my suppliers is putting a surcharge on deliveries of product to us," he says. A recent quote for an electrical component used in his cranes, for example, jumped from $4.40 a foot on a Friday to $5.80 a foot the following Monday, thanks to a fuel surcharge. Rather than passing along costs to customers, Pascuzzi has turned down employees' requests for raises and told his salespeople to set up phone calls instead of driving to visit clients. Even so, he thinks he'll resort to a price hike soon. "I can't see any way that we can avoid it," he says.

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