The problem with the existing bus routes is that no one uses them, because, despite all the moaning about fuel prices, car travel is still cheap.

People don't scorn buses because cars are cheap, people scorn buses because buses are crap.

A simple rule of selling any service - transport, psychology, massage, accounting, whatever - is that your service will sell better if it is frequent, reliable and pleasant; price within reason is not a factor, people will pay for a good service.

Bus services are infrequent, unreliable and not really pleasant. So they don't sell.

I have just been in Peru, where bus services are extremely well patronised. The minimum wage is about 20 soles a day, and bus trips are 0.8-1.8 soles for a one-way trip, thus if the person simply goes to and from work it'll eat up 10-15% their income. There's no timetable, but since the things show up every 2-5 minutes there doesn't need to be one. The buses were standing room only 11pm on a Sunday night, compare with Aussie buses at that time a lonely wasteland...

When car travel becomes... somewhat less cheap, busses are going to go to the wall as well

If the only reason car travel is expensive is because of high oil prices, buses will do better. It's economy of scale, a full bus requires less fuel per person per kilometre than does a full car.

Again in Peru, petrol costs some 10-14 soles per gallon (no, I don't know why a metric country sells fuel bu the gallon). So it's a month's minimum wages to fill a small car's tank. In proportion to Australia's minimum wage this would make petrol something like $15/lt. The result is that only the wealthy own cars, but there are zillions of taxis and buses. The city of Arequipa, some 80% of the vehicles on the road are taxis, and these vehicles which should only really have the driver and 3 passengers typically have 1+5.

at least half the rest are minivan buses called "collectivos" - a taxi service that goes between two particular destinations, when it's full the driver sets off, lets people off at the other side, then waits again to fill up. . I was in one collectivo with 11 passenger seats, we had 18 passengers in there.

Cargo is handled by small vans, but also cargo tri motorbikes, cargo tricycles, and strong guys with trolleys.

The use of oil is not an all or nothing thing. Like any other product, there are uses which seem good when it's cheap, and uses which still seem good even if it's expensive. Whatever happens, people will need to get from A to B. Having 1.5 people per vehicle is only really viable when fuel is quite cheap in proportion to incomes, as in Australia and the US - fill a tank for less than 5% the monthly minimum wage. When it's 100% the minimum wage, you start to see that most people don't own cars and pile onto buses instead.